Use the following to answer questions .
Exhibit: Economic Adjustments
-(Exhibit: Economic Adjustments) If the economy is at point c, the Federal Reserve can close the output gap

Question

Use the following to answer questions .
Exhibit: Economic Adjustments 
-(Exhibit: Economic Adjustments) If the economy is at point c, the Federal Reserve can close the output gap

Quizplus · Accepted Answer

At point c, the economy is experiencing a recessionary gap, meaning that output is below potential. One way for the Federal Reserve to close this gap is by pursuing an expansionary monetary policy, which would involve increasing the money supply and decreasing interest rates. This would encourage borrowing and spending, leading to an increase in aggregate demand and ultimately closing the output gap.

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