Final answer:
Monetary policy affects interest rates and the availability of loanable funds for the average American. A change in the federal funds rate can impact the equity markets by influencing investor confidence and stock prices.
Step-by-step explanation:
Monetary policy, implemented by the Federal Reserve, has a short-run impact on the average American by affecting interest rates and the availability of loanable funds. When the federal funds rate changes, it influences other interest rates in the economy. For example, when the federal funds rate drops, other interest rates tend to drop as well. This can make borrowing money cheaper for individuals, such as when taking out a mortgage or a car loan.
In terms of equity markets, a change in the federal funds rate can have an impact on the stock market. When the Federal Reserve decreases interest rates, it can stimulate economic activity and increase investor confidence. This can lead to higher stock prices as investors perceive greater opportunities for growth. On the other hand, when the Federal Reserve raises interest rates, it can slow down economic activity and make borrowing more expensive, which can dampen investor sentiment and lead to lower stock prices.