If the Fed Believes That Real GDP Is Below Potential

question 108

Multiple Choice

If the Fed believes that real GDP is below potential GDP, it will

• A)lower interest rates to shift the AD curve to the right and the IA line upward.
• B)do nothing and wait for the IA line to shift and return real GDP to potential GDP at a lower inflation rate.
• C)lower interest rates to shift the AD curve to the right.
• D)lower interest rates to shift the IA line downward.
• E)lower interest rates to shift the AD curve to the right and the IA line downward.

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