If the Fed Believes That Real GDP Is Below Potential

question 108

Multiple Choice

If the Fed believes that real GDP is below potential GDP, it will

• A)lower interest rates to shift the AD curve to the right and the IA line upward.
• B)do nothing and wait for the IA line to shift and return real GDP to potential GDP at a lower inflation rate.
• C)lower interest rates to shift the AD curve to the right.
• D)lower interest rates to shift the IA line downward.
• E)lower interest rates to shift the AD curve to the right and the IA line downward.

---

Definitions:

Current Assets

Resources a business plans to change into cash, dispose of, or use up within either a year or its operating cycle, depending on which period extends further.

Current Liabilities

Financial obligations of a business that are due and payable within one year.

Total Liabilities

The sum of all financial obligations a company owes to outside parties, including loans, accounts payable, and mortgage obligations.

State Sales Tax

A tax imposed by a state on the sale of goods and services, typically calculated as a percentage of the sales price.