If the Fed raises its target for the federal fund rate, this indicates
A) the Fed is pursuing an expansionary monetary policy.
B) the Fed is pursuing a contractionary monetary policy.
C) the Fed is attempting to lower unemployment.
D) the Fed is concerned that the growth in aggregate demand will exceed potential GDP.

Question

Quizplus · Accepted Answer

When the Fed raises its target for the federal fund rate, it is indicating that it is pursuing a contractionary or restrictive monetary policy. This is because raising the federal fund rate makes borrowing more expensive, which can slow down economic growth and help prevent inflation.

If the Fed Raises Its Target for the Federal Fund