If the Fed raises the federal funds rate,which of the following happens?
A)Net exports increase.
B)The real interest rate falls.
C)Aggregate demand decreases.
D)Real GDP increases.
E)The price level rises.

Question

Quizplus · Accepted Answer

When the Fed raises the federal funds rate, it becomes more expensive for banks to borrow money, which leads to a decrease in the money supply. This decrease in the money supply causes a decrease in aggregate demand as consumers and businesses have less money to spend. Thus, the correct answer is C, aggregate demand decreases.

If the Fed Raises the Federal Funds Rate,which of the Following