If the Fed raises the interest rate, the first effect in an AS/AD figure is a shift of the
Curve.

Question

Quizplus · Accepted Answer

When the Fed raises the interest rate, it increases the cost of borrowing money. This results in a decrease in consumer and business spending, leading to a decrease in aggregate demand (AD) and a leftward shift of the AD curve. This is represented in an AS/AD diagram as a movement from point A to point B, where the new equilibrium is at a lower level of output and a higher price level.

If the Fed Raises the Interest Rate, the First Effect