Answer: C) The Federal Reserve raised the federal funds rate
Explanation:
The federal funds rate is highly influential and often has a direct effect on for example the U.S. economy because it serves as a base for interest rates offered by various financial and credit institutions to businesses and consumers. Fluctuations in the prime rate – the interest rate that banks charge their most creditworthy customers for loans, lines of credit and mortgages – follow those of the federal funds rate, generally running a few points above.
Scenario
For example, a credit card company's customers with high credit ratings may receive the prime interest rate. If the federal funds rate is 2%, then the prime rate would be approximately 5%, as it runs about three points above the federal funds rate. If the federal funds rate gets lowered from 2% to 1.5%, the bank may lower the interest rate on the credit card accordingly.
