If Real GDP Exceeds Potential GDP,to Move the Economy to Potential

question 22

Multiple Choice

If real GDP exceeds potential GDP,to move the economy to potential GDP the Fed

• A)raises the federal funds rate to increase potential GDP but not real GDP.
• B)lowers the federal funds rate to decrease real GDP but not potential GDP.
• C)raises the federal funds rate to decrease real GDP but not potential GDP.
• D)lowers the federal funds rate to increase potential GDP but not real GDP.
• E)raises the federal funds rate to decrease both real GDP and potential GDP.

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Definitions:

Net Capital Outflow

The difference between the purchase of foreign assets by domestic residents and the purchase of domestic assets by foreign residents over a specific period.

Purchasing-Power Parity

An economic theory that compares different countries' currencies through a "basket of goods" approach, arguing that exchange rates should equalize the price of the basket of goods in each country.

Price Level

An index that measures the average of current prices across a variety of goods and services compared to a base year.

Nominal Value

The face value of a financial instrument without adjusting for inflation or other factors.