Suppose the Fed raises the federal funds rate. Put the following changes in order in which they occur, starting with the changes that take place almost immediately and ending with the changes that may occur up to two years afterwards:
I. short-term interest rates rise
ii. long-term interest rate rises
iii. aggregate demand decreases
Iv. inflation rate decreases

Question

Suppose the Fed raises the federal funds rate. Put the following changes in order in which they occur, starting with the changes that take place almost immediately and ending with the changes that may occur up to two years afterwards:
I. short-term interest rates rise
 ii. long-term interest rate rises 
iii. aggregate demand decreases
Iv. inflation rate decreases

Quizplus · Accepted Answer

When the Fed raises the federal funds rate, short-term interest rates rise almost immediately. Long-term interest rates may also rise as a result. This can lead to a decrease in aggregate demand, and eventually, the inflation rate may decrease.

Suppose the Fed Raises the Federal Funds Rate