Final answer:
When the Federal Reserve lowers the federal funds rate, the interest rate on bank savings accounts typically decreases. This relationship is due to the influence of the federal funds rate on the broader financial market and banks' need to maintain profit margins. Thus, the correct answer to the question is option a, where the interest rate offered will decrease.
Step-by-step explanation:
If the Federal Reserve lowers the federal funds rate, the interest rate offered on bank savings accounts will typically decrease. This is because the federal funds rate influences the rates that banks can charge each other for overnight lending, which in turn affects the broader financial market, including the interest rates on savings accounts.
When the Federal reserve lowers this rate, it usually leads to a decrease in the interest rates banks can charge for loans, which often results in banks offering lower interest on deposits to maintain their profit margins.
Even if the interest rates at banks are already low, it does not mean they cannot drop further, although they technically cannot drop below zero.
During the 2008-2009 recession, the federal funds rate fell to as low as 0.16%, demonstrating that rates can be reduced significantly during economic downturns. But such low rates can lead to a situation where banks pay minimal interest on savings accounts.
Therefore, the correct answer to the student's question is: The interest rate offered will decrease - Option a.