Figure 26-12
-Refer to Figure 26-12. In the dynamic AD-AS model, if the economy is at point A in year 1 and is expected to go to point B in year 2, the Federal Reserve would most likely
A) increase interest rates.
B) decrease interest rates.
C) not change interest rates.
D) increase the inflation rate.

Question

Figure 26-12 
-Refer to Figure 26-12. In the dynamic AD-AS model, if the economy is at point A in year 1 and is expected to go to point B in year 2, the Federal Reserve would most likely
A) increase interest rates. 
B) decrease interest rates. 
C) not change interest rates. 
D) increase the inflation rate.

Quizplus · Accepted Answer

If the economy is moving from point A to point B, it likely indicates an overheating economy with rising inflation, prompting the Federal Reserve to increase interest rates to cool down the economy.

Figure 26-12 -Refer to Figure 26-12. in the Dynamic AD-AS Model, If