When the Fed Increases the Federal Funds Rate

question 39

Multiple Choice

When the Fed increases the federal funds rate,

• A)there is no effect on investment because investment depends on the real interest rate.
• B)the real interest rate falls,and investment increases.
• C)the real interest rate rises,and investment decreases.
• D)the real interest rate is unaffected,but investment still decreases.
• E)the real interest rate rises,and investment does not change.

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Definitions:

GAAP

Generally Accepted Accounting Principles; a collection of commonly followed accounting rules and standards for financial reporting.

IFRS

International Financial Reporting Standards, a set of accounting standards designed to ensure transparency, accountability, and efficiency in financial statements globally.

Fair Value

The estimated price at which an asset can be bought or sold in a current transaction between willing parties, other than in a liquidation sale.

Capital Lease

A lease agreement where the lessee essentially becomes the owner of the asset for accounting purposes, often including an option to purchase at the lease's end.