In the short run, an increase in the federal funds rate the real interest rate__________ and__________ investment.
A) raises; decreases
B) lowers; increases
C) lowers; decreases
D) raises; increases

Question

Quizplus · Accepted Answer

In the short run, an increase in the federal funds rate raises the real interest rate, which makes borrowing more expensive for firms. This leads to a decrease in investment as firms reduce their spending on projects and expansion due to the higher cost of borrowing.

In the Short Run, an Increase in the Federal Funds