To close a recessionary gap, the Fed ______ interest rates which ______ planned aggregate spending and ______ short-run equilibrium output.

Question

Quizplus · Accepted Answer

To close a recessionary gap, the Fed reduces interest rates, which increases planned aggregate spending and increases short-run equilibrium output. Lower interest rates make borrowing cheaper, encouraging investment and consumption, thus boosting economic activity.

To Close a Recessionary Gap, the Fed ______ Interest Rates