Explain How the Fed Could Use Monetary Policy to Close

question 42

Essay

Explain how the Fed could use monetary policy to close a recessionary gap. A complete answer must include an explanation of the policy tools that can be used and their effects on the money supply, interest rates, and aggregate demand. Use a diagram of LRAS, SRAS, and AD to illustrate your answer.

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Definitions:

Hadrian

Roman Emperor from 117 to 138 A.D., known for constructing Hadrian's Wall which marked the northern limit of Britannia.

Architectural Coffering

A series of sunken panels in the shape of squares, rectangles, or octagons in a ceiling, soffit or vault, used as a decorative element in classical architecture.

Lighten Weight

The process or action of making an object less heavy or reducing its mass.

Dome

A Dome is an architectural element featuring a hollow upper half of a sphere, commonly used in buildings to cover a large space without the need for internal supports, notable in religious and governmental buildings.