If the output gap is negative, the Federal Reserve will _____ the real interest rate to _____.
A)lower; cool inflationary pressures
B)lower; reduce unemployment
C)raise; cool inflationary pressures
D)raise; reduce unemployment

Question

Quizplus · Accepted Answer

When the output gap is negative, it means the economy is producing below its potential, leading to higher unemployment. The Federal Reserve would lower the real interest rate to stimulate economic activity and reduce unemployment.

If the Output Gap Is Negative, the Federal Reserve Will