When the Fed lowers the federal funds rate, aggregate demand
A) increases.
B) could increase, decrease or stay the same.
C) stays the same.
D) decreases.

Question

Quizplus · Accepted Answer

When the Fed lowers the federal funds rate, it becomes cheaper for banks to borrow money, which leads to an increase in the money supply and a lower interest rate. This encourages borrowing and spending by individuals and businesses, leading to an increase in aggregate demand.

When the Fed Lowers the Federal Funds Rate, Aggregate Demand