Suppose That Initially Real GDP Equals Potential GDP

question 153

Multiple Choice

Suppose that initially real GDP equals potential GDP. Then a decrease 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; selling
• B) lower; selling
• C) raise; buying
• D) lower; buying

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Definitions:

Variable Overhead

Indirect production costs that fluctuate with the level of output, such as utilities or materials.

Flexible Budget

A budget that adjusts or flexes with changes in volume or activity level, allowing for more accurate cost control.

Monthly Sales

The total revenue generated from sales within a month, often tracked to assess business performance.

Variable Costs

Costs that vary directly with the level of production or sales volume, such as raw materials and direct labor expenses.