If the Fed lowers the federal funds rate, then

Question

Quizplus · Accepted Answer

When the Fed lowers the federal funds rate, the cost of borrowing decreases, which encourages businesses and consumers to take out more loans and make more purchases. This results in a multiplier process that affects aggregate demand, as more spending leads to increased economic activity and growth. However, investment and consumption expenditure may not necessarily decrease as they may increase due to the lower cost of borrowing. The price of the dollar may decrease on the foreign exchange market, making exports cheaper and potentially increasing net exports. Therefore, only choice B is the best answer.

If the Fed Lowers the Federal Funds Rate, Then