The Federal Funds Rate, the target interest rate of monetary policy, has a posit

Question

The Federal Funds Rate, the target interest rate of monetary policy, has a positive correlation with other interest rates meaning that as the Federal Reserve raises the Federal Funds Rate,

mortgage, student loan, car, and consumer lending rates all go down.

unemployment goes down.

mortgage, student loan, car, and consumer lending rates all go up.

exchange rates with foreign currencies go down.

mortgage, student loan, car, and consumer lending rates all go down.

unemployment goes down.

mortgage, student loan, car, and consumer lending rates all go up.

exchange rates with foreign currencies go down.

Explanation / Answer

It has been stated that the federal funds rate has positive correlation with other interest rates. This means that as federal funds rate increases, other interest rates also increase. On the other hand, as federal funds rate decreases, other interest rates also decreases.

Thus, as the Federal Reserve raises the Federal Funds Rate, mortgage, student loan, car, and consumer lending rates all go up.

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

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