Suppose That Initially Real GDP Equals Potential GDP

question 118

Multiple Choice

Suppose that initially real GDP equals potential GDP. Then an increase in aggregate demand occurs. According to the Taylor rule, the Fed should____________ the federal funds rate by ____________government securities in the open market.

• A) raise; buying
• B) lower; selling
• C) raise; selling
• D) lower; buying

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Definitions:

Capitalism

An economic system characterized by private ownership of the means of production and the creation of goods or services for profit.

Self-Interest

The motivation of individuals to pursue their own advantages and well-being.

Price Ceilings

Price controls that outlaw trade at prices above the ceiling.

Intended

Something that is planned or meant to happen in a specific way.