If the Federal Reserve raises interest rates:
A)consumption will not be affected, but investment will rise, and this will increase aggregate expenditure.
B)consumption and investment will increase, leading a rise in aggregate expenditure and an increase in equilibrium GDP.
C)consumption and investment will decrease, leading to a fall in aggregate expenditure and a decrease in equilibrium GDP.
D)the dollar will depreciate, and this will lead to lower imports and higher exports, and a rise in aggregate expenditure.

Question

Quizplus · Accepted Answer

When the Federal Reserve raises interest rates, it makes borrowing more expensive for businesses and consumers. This reduces investment and consumption, which in turn decreases aggregate expenditure and equilibrium GDP.

If the Federal Reserve Raises Interest Rates