Which of the following is likely to happen when the Fed raises the federal funds rate?
A) The long-term interest rate will fall.
B) Economic activity will increase.
C) The labor demand curve shifts to the right.
D) The labor demand curve shifts to the left.

Question

Quizplus · Accepted Answer

When the Fed raises the federal funds rate, it becomes more expensive for banks to borrow money, which decreases the amount of money they have available to lend out to businesses and individuals. This decrease in available funds for borrowing creates a contractionary effect on the economy, resulting in a decrease in economic activity and a shift to the left in the labor demand curve. The long-term interest rate is also likely to increase, not fall, as a result of the Fed raising the federal funds rate.

Which of the Following Is Likely to Happen When the Fed