The Federal Reserve lowers interest rates. As a result, in the short run, real GDP ________ and the price level ________.
A) increases; rises
B) increases; falls
C) decreases; rises
D) decreases; falls

Question

Quizplus · Accepted Answer

When the Federal Reserve lowers interest rates, it becomes cheaper to borrow money. This typically leads to increased spending and investment by businesses and consumers, which boosts real GDP. Additionally, the increased demand can lead to higher prices, thus the price level rises.

The Federal Reserve Lowers Interest Rates