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Suppose the Economy Is Producing Below Potential GDP and the Federal

Question 37

Multiple Choice

Suppose the economy is producing below potential GDP and the Federal Reserve implements the appropriate change in monetary policy, but not until after the economy has started to recover from the recession. In this situation there is a real danger that


A) the Fed's expansionary policy will result in too small of an increase in GDP.
B) the Fed's expansionary policy will result in too large of an increase in GDP.
C) the Fed's contractionary policy will result in too large of a decrease in GDP.
D) the Fed's contractionary policy will result in too small of a decrease in GDP.

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