Which shift should occur if the Fed raises the discount rate?
A)The investment demand curve should shift rightward.
B)The aggregate supply curve should shift rightward.
C)The aggregate demand curve should shift leftward.
D)The aggregate demand curve should shift rightward.

Question

Quizplus · Accepted Answer

If the Fed raises the discount rate, it becomes more expensive for banks to borrow money from the Fed. The bank's cost of borrowing will increase, leading to higher interest rates on loans for consumers and businesses. Thus, it will reduce their borrowing and investment. The decrease in investment, in turn, will lead to a decrease in the aggregate demand curve, shifting it leftward.

Which Shift Should Occur If the Fed Raises the Discount