When the Fed raises the federal funds rate, eventually there is
A) an upward movement along the investment demand curve and along the aggregate demand curve.
B) an upward movement along the investment demand curve and the aggregate demand curve shifts leftward.
C) an upward movement along the investment demand curve and the aggregate demand curve shifts rightward.
D) a leftward shift of the investment demand curve and the aggregate demand curve shifts leftward.
E) a leftward shift of both the aggregate demand curve and the aggregate supply curve.

Question

Quizplus · Accepted Answer

When the Fed raises the federal funds rate, it becomes more expensive for firms to borrow money for investment. This leads to a decrease in investment demand, causing an upward movement along the investment demand curve. As a result of this decrease in investment, the aggregate demand curve shifts leftward. Hence, choice (B) is the correct answer.

When the Fed Raises the Federal Funds Rate, Eventually There