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 believe future profits from investment will be less, they are likely to invest less, reducing aggregate demand. To offset this, the Fed can lower the federal funds rate to make borrowing cheaper, encouraging investment and spending.

Businesses Become Convinced That Future Profits from Investment Will Be