When there is a threat of inflation in the economy, the Fed can _{--------------------}the federal funds rate so to_{--------------------} aggregate demand and _{--------------------}the price level. A)lower; increase; decrease B)raise; decrease; decrease C)lower; increase; increase D)raise; decrease; increase E)raise; increase; decrease

Question

Quizplus · Accepted Answer

Raising the federal funds rate makes borrowing more expensive, which decreases aggregate demand and helps to decrease the price level, countering inflation.

When There Is a Threat of Inflation in the Economy