The federal funds rate (FFR) is the rate of interest at which the United States Federal Reserve lends money to U.S. banks and other depository institutions. The FFR was recently lowered, and banks began to loan money at very low interest rates, resulting in an abnormally high level of domestic consumer and commercial debt. The Federal Reserve has announced that it will gradually increase the FFR to its previous level. As the FFR increases, domestic consumer and commercial interest rates and debt will return to their previous levels.
Which of the following, if true, casts the most doubt on the prediction above?
A)Mortgage rates often change in anticipation of changes to the FFR.
B)Easy and inexpensive access to capital allowed many businesses to increase capacity, leading to lower levels of unemployment.
C)According to standard monetary policy, a low FFR can soften the effects of a recession.
D)Instability in international capital markets, which drives money into the United States and lowers interest rates, is likely to increase in the near future.
E)The government is already considering placing stricter legal limits on lending practices.
E is wrong - I am not sure of OA
Which of the following, if true, casts the most doubt on the prediction above?
A)Mortgage rates often change in anticipation of changes to the FFR.
B)Easy and inexpensive access to capital allowed many businesses to increase capacity, leading to lower levels of unemployment.
C)According to standard monetary policy, a low FFR can soften the effects of a recession.
D)Instability in international capital markets, which drives money into the United States and lowers interest rates, is likely to increase in the near future.
E)The government is already considering placing stricter legal limits on lending practices.
E is wrong - I am not sure of OA
