Question

In​ 2017, one article in the Wall Street Journal had the​ headline: "Federal Reserve Expected to Deliver Rate​ Increase."

​Source: David​ Harrison, "Federal Reserve Expected to Deliver​ Rate," Wall StreetJournal​, June​ 14, 2017.

1. What rate was the headline likely referring​ to?

A. Commercial rate.

B. Federal funds rate.

C. Treasury rate.

D.Discount rate.

2. Who is able to borrow and lend at that​ rate?

A. Banks are able to borrow and lend from each other at that rate.

B. Households are able to borrow from banks at that rate.

C. The government borrows at that rate by selling Treasury securities.

D. Banks are able to borrow from the Federal Reserve at that rate.

3. Why does the​ Fed's actions to increase or decrease the rate you identified above attract so much​ attention?

A. The​ Fed's actions attract so much attention because this rate is set precisely by the Fed.

B. This rate has a greater effect on​ long-term interest rates than on​ short-term rates.

C. This rate ultimately has a substantial effect on many other interest rates.

D. This is the rate that directly affects the mortgage rates that households pay.

Answer 1

Question 1

Federal Reserve conducts monetary policy. Federal Reserve influence the interest rates in the economy.

More specifically, Federal Reserve set target for federal funds rate.

So, the headline was likely referring to federal funds rate.

Hence, the correct answer is the option (B).

Question 2

Federal funds rate is the rate at which banks borrow and lend federal funds to each other on overnight basis.

Thus,

Banks are able to borrow and lend from each other at that rate.

Hence, the correct answer is the option (A).

Question 3

The Fed's action to increase or decrease the rate you identified above attract so much attention because this rate ultimately has a substantial effect on many other interest rates.

Hence, the correct answer is the option (C).