Figure 17-13

-Refer to Figure 17-13.In the figure above,if the economy in Year 1 is at point A and is expected in Year 2 to be at point B,then the appropriate monetary policy by the Federal Reserve would be to

Question

Figure 17-13
 
-Refer to Figure 17-13.In the figure above,if the economy in Year 1 is at point A and is expected in Year 2 to be at point B,then the appropriate monetary policy by the Federal Reserve would be to

Quizplus · Accepted Answer

Point B is beyond the potential output level of the economy, indicating an overheating economy with high inflation. To control inflation, the Federal Reserve would raise interest rates, which would reduce spending and slow down the economy. Lowering income taxes or raising them would not directly address the inflationary pressure in the economy.

Figure 17-13 -Refer to Figure 17-13.In the Figure Above,if the Economy in Above,if