When the Federal Reserve lowers the federal funds rate, in the short run

Question

Quizplus · Accepted Answer

Lowering the federal funds rate encourages borrowing and investment, which leads to an increase in aggregate demand and a rightward shift of the AD curve. Option B is incorrect because lower interest rates usually increase the quantity of loans banks make. Option C is incorrect because the economy would move along the existing AD curve, not shift it. Option D is incorrect because changes in the federal funds rate do not directly affect the long-run aggregate supply curve.

When the Federal Reserve Lowers the Federal Funds Rate, in the Short