In setting interest rates, the Fed reacts directly to
A)the output gap.
B)the price level.
C)the level of potential GDP.
D)the level of real GDP.
E)the level of investment.

Question

Quizplus · Accepted Answer

The output gap (the difference between actual and potential GDP) is a key factor that the Federal Reserve considers when setting interest rates. If the economy is operating below its potential, the Fed may lower interest rates to stimulate economic activity and boost employment. Conversely, if the economy is operating above its potential, the Fed may raise interest rates to prevent inflationary pressures.

In Setting Interest Rates, the Fed Reacts Directly to