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.

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Definitions:

Neocortex

The part of the brain involved in higher-order brain functions such as sensory perception, cognition, generation of motor commands, spatial reasoning, and conscious thought.

Levels-Of-Processing

A theory in cognitive psychology suggesting that deeper levels of analysis produce more enduring memory.

Memory

The ability of the mind to retain and recall information.

Frog

An amphibian creature with long hind legs for leaping, smooth skin, and typically lives both in water and on land.