Suppose That the Economy Is Producing Below Potential GDP and the Fed

question 226

Multiple Choice

Suppose that the economy is producing below potential GDP and the Fed implements the correct change in monetary policy,but not until after the economy has passed the trough of the recession.Then

• A)the Fed's contractionary policy will result in too large of a decrease in GDP.
• B)the Fed's contractionary policy will result in too small of a decrease in GDP.
• C)the Fed's expansionary policy will result in too small of a decrease in GDP.
• D)the Fed's expansionary policy will result in too large of an increase in GDP.

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Definitions:

Low Interest Loans

Loans offered with lower interest rates than the market average, often used to promote certain economic or social policies.

Incentives

Rewards or motivations provided to individuals or groups to encourage desired behaviors or outcomes.

Adaptive Response

is a reaction or adjustment made by an organism or system in response to changes in its environment to maintain or restore optimal functionality.

Physiological Disorders

Medical conditions that affect the body's normal biological functions, often requiring clinical treatment or intervention.