Figure 26-5

-Refer to Figure 26-5.In the figure above,if the economy is at point A,the appropriate monetary policy by the Federal Reserve would be to

Question

Figure 26-5
 
-Refer to Figure 26-5.In the figure above,if the economy is at point A,the appropriate monetary policy by the Federal Reserve would be to

Quizplus · Accepted Answer

At point A, the economy is experiencing high inflation and output levels above potential GDP, which indicates an overheated economy. In such a situation, the Federal Reserve should use contractionary monetary policy to slow down the economy and prevent inflation from rising further. One of the tools at its disposal is raising interest rates, which would make borrowing more expensive, reduce consumer spending, and cool down the economy. Lowering income taxes or raising them would not directly affect the money supply or borrowing costs, making them less suitable choices for monetary policy action.

Figure 26-5 -Refer to Figure 26-5.In the Figure Above,if the Economy Is