A worldwide recession reduces the amount of U.S. exports, and as a result, aggregate demand decreases. To move U.S. GDP back to potential GDP, the Fed should

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To increase aggregate demand and move the U.S. GDP back to potential GDP, the Fed should lower the federal funds rate. This would decrease the cost of borrowing, leading to an increase in investment spending and consumer spending, which would stimulate economic growth. Additionally, a lower federal funds rate would depreciate the dollar, making U.S. exports relatively cheaper, leading to an increase in net exports.

A Worldwide Recession Reduces the Amount of U