-In the above figure, if the economy is initially at point c, the short-run effect of a hike in the federal funds rate is given by movement from point
A) c to point d, increasing output and decreasing the unemployment rate.
B) c to point a, keeping output and the unemployment rate constant.
C) c to point b, increasing output and decreasing the unemployment rate.
D) c to point d, decreasing output and increasing the unemployment rate.

Question

-In the above figure, if the economy is initially at point c, the short-run effect of a hike in the federal funds rate is given by movement from point
A) c to point d, increasing output and decreasing the unemployment rate. 
B) c to point a, keeping output and the unemployment rate constant. 
C) c to point b, increasing output and decreasing the unemployment rate. 
D) c to point d, decreasing output and increasing the unemployment rate.

Quizplus · Accepted Answer

A hike in the federal funds rate typically leads to higher borrowing costs, which can reduce spending and investment, leading to a decrease in output and an increase in the unemployment rate.

-In the Above Figure, If the Economy Is Initially at Point