If the Federal Reserve lowers the Fed Funds rate, ceteris paribus, the equilibrium levels of funds lent will , and the equilibrium level of real interest rates will _.

A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
E) reverse direction from their previous trends; reverse direction from their previous trends

Question

If the Federal Reserve lowers the Fed Funds rate, ceteris paribus, the equilibrium levels of funds lent will __________, and the equilibrium level of real interest rates will ___________.

A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
E) reverse direction from their previous trends; reverse direction from their previous trends

Yousef Mohamed · Accepted Answer

Final Answer : B, Explanation :  When the Federal Reserve lowers the Fed Funds rate, it becomes cheaper for banks to borrow money from each other. This typically leads to an increase in the amount of funds lent as borrowing costs are lower. Additionally, the decrease in the Fed Funds rate generally leads to a decrease in real interest rates as the overall cost of borrowing in the economy falls.

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