if the federal reserve announces that its target for the federal funds rate is falling from 3 percent to…

if the federal reserve announces that its target for the federal funds rate is falling from 3 percent to 2.25 percent, how do you expect workers and firms to react?\n\nas long as the feds announcement is credible, workers and firms will decrease their consumption and investment spending, which will decrease aggregate demand and inflation.\n\nas long as the feds announcement is credible, workers and firms will increase their consumption and investment spending, which will increase aggregate demand and inflation.\n\nif the feds announcement is not credible, workers and firms will not expect inflation to rise so they will increase their consumption and investment spending, which will decrease aggregate demand and increase inflation.\n\nworkers and firms will incorporate the decrease in interest rates into their expectations of inflation, and they will expect inflation to fall as a result of feds policy announcement.

if the federal reserve announces that its target for the federal funds rate is falling from 3 percent to 2.25 percent, how do you expect workers and firms to react?\n\nas long as the feds announcement is credible, workers and firms will decrease their consumption and investment spending, which will decrease aggregate demand and inflation.\n\nas long as the feds announcement is credible, workers and firms will increase their consumption and investment spending, which will increase aggregate demand and inflation.\n\nif the feds announcement is not credible, workers and firms will not expect inflation to rise so they will increase their consumption and investment spending, which will decrease aggregate demand and increase inflation.\n\nworkers and firms will incorporate the decrease in interest rates into their expectations of inflation, and they will expect inflation to fall as a result of feds policy announcement.

Answer

Brief Explanations:

When the Federal Reserve lowers the federal - funds rate target, it signals easier monetary policy. If the announcement is credible, lower interest rates make borrowing cheaper. Workers and firms are likely to increase consumption and investment spending. This increase in spending will boost aggregate demand. Higher aggregate demand, in turn, can lead to higher inflation.

Answer:

B. As long as the Fed's announcement is credible, workers and firms will increase their consumption and investment spending, which will increase aggregate demand and inflation.