1. In the short run, if the Fed wants to raise the federal funds rate, it A. instructs the New York Fed to sell government securities in the foreign exchange market. B. tells large commercial banks to raise their interest rates. C. instructs the New York Fed to buy government securities in the open market. D. instructs the New York Fed to sell government securities in the open market. E. instructs large commercial banks to sell government securities in the open market.
2. In the short run, when the Fed increases the federal funds rate A. the real interest rate is unaffected but investment still 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 decreases. E. the real interest rate rises and investment does not change.
3. If the Fed wants to fight inflation, it will ________ the federal funds rate in order to A. raise; decrease aggregate supply B. raise; decrease aggregate demand C. lower; increase aggregate supply D. raise; increase aggregate supply E. lower; decrease aggregate demand.