If the Federal Reserve lowers the Fed Funds rate, ceteris paribus, the equilibrium levels of funds lent will __________, and the equilibrium level of real interest rates will ___________.

Question

Quizplus · Accepted Answer

When the Fed Funds rate is lowered, it becomes cheaper for banks to borrow money from the Fed, which increases the supply of funds available for lending. This leads to an increase in the equilibrium level of funds lent. However, since the supply of funds has increased, the demand for funds stays the same, leading to a decrease in the equilibrium level of real interest rates.

If the Federal Reserve Lowers the Fed Funds Rate, Ceteris