If the Fed raises the federal funds rate, eventually the
A)AD curve shifts leftward, decreasing real GDP and increasing the price level.
B)AD curve shifts leftward, decreasing real GDP and the price level.
C)AS curve shifts rightward, decreasing real GDP and increasing the price level.
D)AD curve shifts rightward, increasing real GDP and the price level.
E)AS curve shifts leftward, decreasing real GDP and increasing the price level.

Question

Quizplus · Accepted Answer

Raising the federal funds rate makes borrowing more expensive, reducing consumer spending and investment, which shifts the AD curve leftward, decreasing both real GDP and the price level.

If the Fed Raises the Federal Funds Rate, Eventually the