Which shift should occur if the Fed raises the discount rate?
A)The investment demand curve should shift rightward.
B)The aggregate supply curve should shift rightward.
C)The aggregate demand curve should shift leftward.
D)The aggregate demand curve should shift rightwarD.The AD will decrease because higher interest rates reduce investment spending by businesses.

Question

Quizplus · Accepted Answer

When the Fed raises the discount rate, it becomes more expensive for banks to borrow money from the Fed. As a result, banks will increase the interest rates they charge their customers, making it more expensive for people and businesses to borrow money. This leads to a decrease in investment and consumption spending, causing a leftward shift in the aggregate demand curve.

Which Shift Should Occur If the Fed Raises the Discount