Businesses become convinced that future profits from investment will be less than initially believed. This conviction leads to a change in aggregate ____________and so the Fed should ____________the federal funds rate if it wants to try to offset this change.

Question

Quizplus · Accepted Answer

When businesses expect lower future profits, they reduce investment, leading to a decrease in aggregate demand. To counteract this and stimulate the economy, the Fed should lower the federal funds rate to encourage borrowing and investment.

Businesses Become Convinced That Future Profits from Investment Will Be