Given an inflationary gap, the Federal Reserve will use monetary policy to _____ interest rates and _____ aggregate demand.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease

Question

Quizplus · Accepted Answer

In an inflationary gap, the economy is overheating, and the Federal Reserve will increase interest rates to decrease aggregate demand, thereby cooling the economy and reducing inflation.

Given an Inflationary Gap, the Federal Reserve Will Use Monetary