In traditional (before 2008) analysis, an autonomous increase in investment spending when the economy is at full employment will
cause the Fed to seek a lower target for the federal funds rate by buying securities in the open market.

Question

Quizplus · Accepted Answer

In traditional analysis, an increase in investment spending would cause an increase in demand for goods and services, eventually leading to higher prices and inflationary pressure. The Fed's response to control inflation would be to raise the target for the federal funds rate by selling securities in the open market, not lowering it.

In Traditional (Before 2008) Analysis, an Autonomous Increase in Investment