​ Assume the Economy Is in Short-Run Equilibrium at a Real

question 77

Multiple Choice

​ Assume the economy is in short-run equilibrium at a real GDP above its potential real GDP. According to classical theory, which of the following policies should be followed?

• A) ​The Federal Reserve should use open market operations and buy U.S. government securities.
• B) ​The Federal Reserve should not follow a fixed rule.
• C) ​The federal government should cut taxes.
• D) ​Fiscal policy and monetary policy should not be activist.

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Definitions:

Formal Laws

Established legal rules codified by governing bodies, which are enforced by institutions and are integral to societal regulation.

Prefrontal Cortex

The part of the brain located at the front of the frontal lobe, associated with complex cognitive behavior, personality expression, decision making, and moderating social behavior.

Amygdala

A part of the brain's limbic system involved in emotions, fear responses, and survival instincts.

Hippocampus

A region of the brain that is crucial for memory formation, navigation, and the processing of emotional responses.