What typically happens to the market funds rate as the economy expands?

As the economy expands, the market funds rate typically increases due to heightened demand for borrowing. When economic growth occurs, businesses and consumers are more likely to seek loans to invest in expansion and purchasing goods, which leads banks to raise interest rates to balance out increased demand with available supply.

Additionally, central banks may respond to an expanding economy by tightening monetary policy to prevent overheating and inflation. This often includes raising the federal funds target rate, which, in turn, influences the market funds rate further upwards.

The interplay between increased economic activity and monetary policy adjustments results in a rising trend for the market funds rate during periods of economic growth. Thus, the correct choice reflects the fundamental relationship between economic conditions and interest rates.