The rate of return being offered by banks on money market accounts is 3% and increasing. which of the following might cause this to happen?

a)the federal funds rate has been held constant
b)the federal reserve lowered the federal funds rate
c)the federal reserve raised the federal funds rate
d)the rate of return on savings accounts is decreasing

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.

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