-In the above figure, if the economy is initially at point a, the short-run effect of a cut in the federal funds rate is given by movement from point
A) a to point c, keeping output and the unemployment rate constant.
B) a to point b, increasing output and the unemployment rate.
C) a to point d, decreasing output and increasing the unemployment rate.
D) a to point b, increasing output and decreasing the unemployment rate.

Question

-In the above figure, if the economy is initially at point a, the short-run effect of a cut in the federal funds rate is given by movement from point
A) a to point c, keeping output and the unemployment rate constant. 
B) a to point b, increasing output and the unemployment rate. 
C) a to point d, decreasing output and increasing the unemployment rate. 
D) a to point b, increasing output and decreasing the unemployment rate.

Quizplus · Accepted Answer

A cut in the federal funds rate typically stimulates economic activity, leading to increased output and decreased unemployment in the short run, which corresponds to a movement from point a to point b.

-In the Above Figure, If the Economy Is Initially at Point