Businesses become convinced that future profits from investment will be less than initially believed. This conviction leads to a change in aggregate _ _ and so the Fed should _ the federal funds rate if it wants to try to offset this change.

Question

Quizplus · Accepted Answer

If businesses become convinced that future profits from investment will be less than initially believed, it means they will lower their investment, which leads to a decrease in aggregate demand. To counteract this, the Fed should lower the federal funds rate, which will stimulate borrowing and increase investment, thus increasing aggregate demand. Therefore, the correct answer is B - demand; lower.

Businesses Become Convinced That Future Profits from Investment Will Be