The ability of the Federal Reserve to use monetary policy to affect economic variables such as real GDP ultimately depends upon its ability to affect
A)tax rates.
B)real interest rates.
C)nominal interest rates.
D)foreign exchange rates.

Question

Quizplus · Accepted Answer

The Federal Reserve can affect real GDP by adjusting nominal interest rates, which in turn affects real interest rates. Lowering nominal interest rates leads to lower real interest rates, which can stimulate borrowing and investment, ultimately increasing real GDP.

The Ability of the Federal Reserve to Use Monetary Policy