When there is a threat of inflation in the economy, the Fed can ________ the federal funds rate so to ________ aggregate demand and ________ the price level.
A)lower; increase; decrease
B)raise; decrease; increase
C)lower; increase; increase
D)raise; decrease; decrease
E)raise; increase; decrease

Question

Quizplus · Accepted Answer

Raising the federal funds rate makes borrowing more expensive, which decreases aggregate demand and helps to lower the price level, combating inflation.

When There Is a Threat of Inflation in the Economy