Question

Sequence of events in the transmission of a rise in the federal funds rate to a change in the inflation rate

Answer 1

Answer:-

The sequence is as below:

1.       The Fed raises the federal funds rate,

2.       other short-term interest rates rise and the exchange rate rises.

3.       The quantity of money and supply of loanable funds decrease

4.       The long-term real interest rate rises.

5.       Consumption expenditure, investment, and net exports decrease.

6.       Aggregate demand decreases.

7.       Eventually the real GDP growth rate

8.       Inflation rate decrease.