Based on the Diagram, If Potential Output Equals 5,000 and the Real

question 147

Multiple Choice

Based on the diagram, if potential output equals 5,000 and the real interest rate is 1 percent, then there is ________ gap and the Fed must ________ the real interest rate so that output will equal potential output.  

• A)a recessionary; raise
• B)a recessionary; reduce
• C)an expansionary; reduce
• D)an expansionary; raise

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