Suppose the Federal Reserve lowers 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 a year afterwards: i. quantity of money increases
Ii) quantity of reserves increases
Iii) aggregate demand increases
Iv) the long-term real interest rate falls

Question

Quizplus · Accepted Answer

Lowering the federal funds rate increases the quantity of reserves, which then increases the quantity of money. This leads to a decrease in the long-term real interest rate, eventually increasing aggregate demand.

Suppose the Federal Reserve Lowers the Federal Funds Rate