Suppose that several European countries enter a recession decreasing U.S. exports. To move U.S. GDP back to potential GDP, the Fed should

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Lowering the federal funds rate would decrease interest rates, making borrowing cheaper and encouraging investment and consumption. This can help boost economic growth and move the economy back towards potential GDP. Increasing the government's budget deficit would also lead to increased spending, but may not be the best long-term solution and could lead to inflation in the future. Decreasing the government's budget deficit or raising the federal funds rate could both potentially exacerbate the recession and slow down growth.

Suppose That Several European Countries Enter a Recession Decreasing U