{"id":25274,"date":"2025-06-18T22:01:36","date_gmt":"2025-06-18T22:01:36","guid":{"rendered":"https:\/\/gaviki.com\/blog\/?p=25274"},"modified":"2025-06-18T22:01:38","modified_gmt":"2025-06-18T22:01:38","slug":"suppose-the-fed-raises-the-target-for-the-federal-funds-rate-from-2-to-2-75","status":"publish","type":"post","link":"https:\/\/gaviki.com\/blog\/suppose-the-fed-raises-the-target-for-the-federal-funds-rate-from-2-to-2-75\/","title":{"rendered":"Suppose the Fed raises the target for the federal funds rate from 2% to 2.75%"},"content":{"rendered":"\n<p>Suppose the Fed raises the target for the federal funds rate from 2% to 2.75%. This change of _ percentage points means that the Fed raised its target by approximately __ .<\/p>\n\n\n\n<p><mark style=\"background-color:rgba(0, 0, 0, 0)\" class=\"has-inline-color has-vivid-cyan-blue-color\"><strong>The correct answer and explanation is:<\/strong><\/mark><\/p>\n\n\n\n<p><strong>Correct Answer:<\/strong><br><strong>0.75 percentage points; 38%<\/strong><\/p>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Step-by-Step Explanation:<\/strong><\/h3>\n\n\n\n<p>When the <strong>Federal Reserve (Fed)<\/strong> changes the <strong>target federal funds rate<\/strong>, it signals a shift in its monetary policy. Let\u2019s break this question into two parts:<\/p>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Part 1: The Change in Percentage Points<\/strong><\/h3>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Initial rate = <strong>2%<\/strong><\/li>\n\n\n\n<li>New rate = <strong>2.75%<\/strong><\/li>\n\n\n\n<li><strong>Change = 2.75% &#8211; 2% = 0.75 percentage points<\/strong><\/li>\n<\/ul>\n\n\n\n<p>So, the Fed raised the rate <strong>by 0.75 percentage points<\/strong>.<\/p>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Part 2: Approximate Percentage Increase<\/strong><\/h3>\n\n\n\n<p>To calculate the <strong>percentage increase<\/strong> relative to the original rate, use this formula: Percentage&nbsp;Increase=(ChangeOriginal)\u00d7100\\text{Percentage Increase} = \\left( \\frac{\\text{Change}}{\\text{Original}} \\right) \\times 100 =(0.752)\u00d7100=37.5%= \\left( \\frac{0.75}{2} \\right) \\times 100 = 37.5\\%<\/p>\n\n\n\n<p>Rounded to the nearest whole number, <strong>the Fed raised the rate by approximately 38%<\/strong>.<\/p>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Economic Significance<\/strong><\/h3>\n\n\n\n<p>A <strong>0.75 percentage point<\/strong> hike is relatively <strong>large<\/strong> in monetary policy terms. Here&#8217;s why it matters:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>The <strong>federal funds rate<\/strong> influences interest rates across the economy\u2014on loans, mortgages, savings, and credit cards.<\/li>\n\n\n\n<li>When the Fed raises this rate, <strong>borrowing becomes more expensive<\/strong>, and <strong>saving becomes more attractive<\/strong>.<\/li>\n\n\n\n<li>This can help <strong>slow down inflation<\/strong>, as it reduces consumer spending and business investment.<\/li>\n\n\n\n<li>However, aggressive increases can also risk <strong>slowing down economic growth<\/strong> or even causing a <strong>recession<\/strong>.<\/li>\n<\/ul>\n\n\n\n<p>In this case, a <strong>0.75 percentage point<\/strong> increase represents a <strong>38% rise<\/strong> over the previous rate\u2014an assertive move by the Fed to likely combat high inflation or an overheating economy.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Suppose the Fed raises the target for the federal funds rate from 2% to 2.75%. This change of _ percentage points means that the Fed raised its target by approximately __ . The correct answer and explanation is: Correct Answer:0.75 percentage points; 38% Step-by-Step Explanation: When the Federal Reserve (Fed) changes the target federal funds [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-25274","post","type-post","status-publish","format-standard","hentry","category-quiz-questions"],"_links":{"self":[{"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/posts\/25274","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/comments?post=25274"}],"version-history":[{"count":1,"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/posts\/25274\/revisions"}],"predecessor-version":[{"id":25276,"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/posts\/25274\/revisions\/25276"}],"wp:attachment":[{"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/media?parent=25274"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/categories?post=25274"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/tags?post=25274"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}