Question

If the Fed lowers the federal funds​ rate, eventually the A. AD curve shifts​ rightward, increasing real GDP and raising the price level. B. AS curve shifts​ rightward, decreasing real GDP and raising the price level. C. AD curve shifts​ leftward, decreasing real GDP and raising the price level. D. AD curve shifts​ leftward, decreasing real GDP and lowering the price level. E. AS curve shifts​ leftward, decreasing real GDP and raising the price level

Answer 1

Answer:

A. AD curve shifts​ rightward, increasing real GDP and raising the price level.

Explanation:

Federal funds rate can be defined as the interest rates bank charge other banks on loans of reserves and it is a monetary policy instrument.

If the Fed lowers the federal funds rate, eventually the Aggregate Demand (AD) curve shifts rightward, increasing real Gross Domestic Products (GDP) and raising the price level.

However, raising the federal funds rate, eventually causes the

Aggregate Demand (AD) curve to shift leftward and real Gross Domestic Products (GDP) decreases.