In the short run, when the Fed increases the federal funds rate,
A)the real interest rate rises and investment decreases.
B)the real interest rate falls and investment increases.
C)there is no effect on investment because investment depends on the real interest rate.
D)the real interest rate rises and investment does not change.
E)the real interest rate is unaffected but investment still decreases.

Question

Quizplus · Accepted Answer

When the Fed increases the federal funds rate, it leads to a rise in the real interest rate, which typically results in a decrease in investment as borrowing costs become higher.

In the Short Run, When the Fed Increases the Federal