Federal funds rate

Federal government fights Recession
-FOMC lowers the target federal funds rate
-NYF buys securities
-bank reserves/money supply increases
-interest rate falls,
-quantity of money demanded increases
-increase in supply of loanable funds
-long term real interest rate goes down
-investment increases
-aggregate demand increases

Fighting Inflation
-Fed raises federal funds rate
-NYF sells securities
-bank reserves/money supply decrease
-quantity of money demanded decreases
-decrease in supply of loanable funds
-long term real interest rate goes up
-investment decreases
-aggregate demand decreases