All else equal, if the real GDP of an economy decreases, then the equilibrium interest rate will _____. In this case, the Federal Reserve can _____ the money supply to bring the interest rate back to its original value.

Question

Quizplus · Accepted Answer

If real GDP decreases, the demand for loanable funds will decrease, leading to a decrease in the equilibrium interest rate. To bring the interest rate back to its original value, the Federal Reserve can increase the money supply.

All Else Equal, If the Real GDP of an Economy