To eliminate a recessionary gap,the Fed can:
A)increase the money supply as it will increase the interest rate and investment.
B)increase the money supply as it will decrease the interest rate and increase investment.
C)decrease the money supply as it will increase the interest rate and investment.
D)decrease the money supply as it will decrease the interest rate and investment.
E)decrease the money supply as it will increase the interest rate and decrease investment.

Question

Quizplus · Accepted Answer

To eliminate a recessionary gap, the Fed needs to increase aggregate demand, which can be achieved through increasing investment. An increase in the money supply will decrease the interest rate, which will make borrowing more attractive and increase investment. Therefore, choice B is the best option.

To Eliminate a Recessionary Gap,the Fed Can