A 1% increase in the fed funds rate,an overnight inter-bank rate often targeted by the Federal Reserve,is most likely to cause

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Quizplus · Accepted Answer

A 1% increase in the fed funds rate is likely to cause a gradual reduction in the money supply, which can lead to decreases in inflation, output, and employment over time. This is because higher interest rates make borrowing more expensive, which can lead to reduced investment and consumer spending. It is unlikely to cause an instantaneous increase in output or a reduction in unemployment (choice B), and it won't necessarily cause prices to increase by 1% within a year (choice A) or lead to an increase in the money supply (M1) over a two-year period (choice C). Other interest rates throughout the economy may not necessarily fall by about 1% (choice E) either.

A 1% Increase in the Fed Funds Rate,an Overnight Inter-Bank