2. Recently the Federal Reserve has increased the federal funds rates with plans for further increases to reduce inflation.

A. Why would an increase in the federal funds rate be expected to reduce inflation?

B. How does the Fed increase the fed funds rate? What impact does this have on the money supply?

C. Would the change in the money supply described above help or hurt the Fed's efforts to reduce inflation? Justify your answer.

D. Why might increases in the fed funds rate cause a recession?

E. Why might increases in the fed funds rate not cause a recession? In your answer, highlight key features of the current economy that would make a recession less likely.