What will a decrease in the bank rate when the SRAS is relatively flat likely lead to?
A)a large increase in the price level and an increase in unemployment
B)a large increase in the price level and an increase in real GDP
C)a small increase in the price level and a decrease in real GDP
D)a small increase in the price level and a decrease in unemployment

Question

Quizplus · Accepted Answer

When the SRAS is relatively flat, it indicates that the economy is operating below full capacity. A decrease in the bank rate typically lowers borrowing costs, encouraging investment and consumption, which increases aggregate demand. In a flat SRAS scenario, this leads to a small increase in the price level and a decrease in unemployment as output and employment rise.

What Will a Decrease in the Bank Rate When the SRAS