If the AS and the AD curves intersect at a level of real GDP that exceeds potential GDP,then the appropriate monetary policy is one that ________ the target cash rate and ________ aggregate demand.

Question

Quizplus · Accepted Answer

When real GDP exceeds potential GDP, the economy is overheating, leading to inflationary pressures. Raising the target cash rate helps to decrease aggregate demand, cooling down the economy.

If the AS and the AD Curves Intersect at a Level