In the aggregate supply-aggregate demand model, raising the federal funds rate initially
A) increases long-run aggregate supply.
B) decreases long-run aggregate supply.
C) increases aggregate demand.
D) decreases aggregate demand.

Question

Quizplus · Accepted Answer

Raising the federal funds rate increases the cost of borrowing, leading to decreased investment and consumption, which in turn leads to a decrease in aggregate demand.

In the Aggregate Supply-Aggregate Demand Model, Raising the Federal Funds