Question

Federal Reserves if the the Federal Rate fund were to increase how would it affect the supply and demand ?

Answer 1

Fed Fund Rates is the rate of interest one bank charges from other bank to lend them money on an overnight basis from their own reserve balances. All the banks must maintain a balance of a percentage equivalent to the deposits in the account of the Federal Reserve. This prevents the banks from lending out every single dollar they have in the bank and make sure they have enough cash to start another business day.

When the interest rate will increase:

The prime rate(rate of interest bank charges to its most credit-worthy customers) will increase

Demand for credit cards will decrease

Savings will increase as the rate of interest offered for the savings is increased, people will want to put their money into banks and more money will come to banks to lend.

Banks will run into more surplus are more money ill come into the banks. Business will run in profit as cost of capital to expand goes higher.

The demand for new homes will decrease as rate of interest charged by the banks will also increase.

Consumer Spending will decrease as banks would be offering better saving rate and the credit card rate will be higher, the impulsive buying of consumers will decrease. They would be encouraged to save more and earn most for the amount they save.

The international goods demands is decreased in foreign market as dollar becomes stronger, the goods become more expensive in the foreign market leading to cut off in demand.

NAtional debt will increase with the increase in the rate hike.