If the Fed raises the federal funds rate,eventually the
A)AD curve shifts leftward,decreasing real GDP and increasing the price level.
B)AS curve shifts leftward,decreasing real GDP and increasing the price level.
C)AD curve shifts rightward,increasing real GDP and the price level.
D)AD curve shifts leftward,decreasing real GDP and the price level.
E)AS curve shifts rightward,decreasing real GDP and increasing the price level.

Question

Quizplus · Accepted Answer

When the Fed raises the federal funds rate, it becomes more expensive for banks to borrow and lend money. This leads to a decrease in the money supply, which shifts the AD curve leftward. As a result, both real GDP and the price level decrease. Therefore, choice D is the best answer.

If the Fed Raises the Federal Funds Rate,eventually the