When the Fed raises the federal funds rate, other

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Quizplus · Accepted Answer

When the Fed raises the federal funds rate, other interest rates (such as mortgage rates and loan rates) also tend to rise. This increase in interest rates makes borrowing more expensive, which reduces both consumption and investment spending. Additionally, when interest rates rise, the demand for the country's currency tends to increase, which can cause the exchange rate to appreciate. As a result, net exports (exports minus imports) tend to decline. These factors all lead to a decrease in aggregate demand, shifting the aggregate demand curve leftward.

When the Fed Raises the Federal Funds Rate, Other