If the Fed wanted to stimulate the economy to limit the effects of a recessionary gap, then it should ________ the federal funds rate in order to ________ the real interest rate and thereby ________ investment.

Question

Quizplus · Accepted Answer

Lowering the federal funds rate would typically lead to a decrease in the real interest rate, which in turn would encourage more investment by making borrowing cheaper. This is a common monetary policy tool used to stimulate economic activity.

If the Fed Wanted to Stimulate the Economy to Limit