If the Fed raises its target for the federal fund rate,this indicates that
A)the Fed is pursuing an expansionary monetary policy.
B)the Fed is pursuing a contractionary monetary policy.
C)the Fed is attempting to combat deflation.
D)The Fed is concerned that the growth in aggregate demand is too slow to keep up with potential GDP.

Question

Quizplus · Accepted Answer

When the Fed raises its target for the federal fund rate, it is pursuing a contractionary monetary policy. This means the Fed is trying to slow down economic growth and prevent inflation from rising too quickly. By raising the interest rate, it becomes more expensive for consumers and businesses to borrow money, which can decrease spending and investment.

If the Fed Raises Its Target for the Federal Fund