The ripple effects that occur when the Fed changes the federal funds rate include ________.

Question

Quizplus · Accepted Answer

When the Fed changes the federal funds rate, it affects the interest rates that banks charge consumers and businesses for borrowing money. Higher interest rates lead to a decrease in consumption and investment as borrowing becomes more expensive. Therefore, choice A is the correct answer. Choice B is incorrect because higher interest rates make a country's currency relatively more attractive to investors, leading to an increase in its value and a decrease in net exports. Choice C is incorrect because a decrease in the federal funds rate leads to a decrease in interest rates. Choice D is incorrect because the federal funds rate does not directly impact short-run aggregate supply.

The Ripple Effects That Occur When the Fed Changes the Federal