If the AS and the AD curve intersect at a level of real GDP that exceeds potential GDP,then the appropriate monetary policy is one that ________ the federal funds rate and ________ aggregate demand.
A)raises;increases
B)raises;decreases
C)lowers;increases
D)lowers;decreases
E)raises;has no effect on

Question

Quizplus · Accepted Answer

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

If the AS and the AD Curve Intersect at a Level