The FOMC is scheduled to meet on December 13-14 and it is anticipated that they will raise the federal funds rate.
a. Explain what the federal rate is.
b. Illustrate, using the theory of liquidity preference model, the impact of the fed’s anticipated policy funds rate.
c. Illustrate, with a diagram of the AS-AD model, the short-run effects of this increased interest rate on output and the price level.
d. Current inflation is less than the Fed’s 2% goal. Does a higher interest rate help the Fed achieve this goal? Explain why or why not.