When real GDP is above potential GDP, the Fed uses contractionary monetary policy.

Name: When real GDP is above potential GDP, the Fed uses contractionary monetary policy.
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When real GDP is above potential GDP, it is a sign of excessive economic growth which can lead to inflation. In order to prevent this, the Fed uses contractionary monetary policy which aims to decrease the money supply and increase interest rates, which will ultimately decrease spending and decrease inflationary pressures.

When Real GDP Is Above Potential GDP, the Fed Uses