Figure 26-7

-Refer to Figure 26-7.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

Question

Figure 26-7
 
-Refer to Figure 26-7.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

Quizplus · Accepted Answer

Moving from point A to point B in the dynamic AD-AS model represents an increase in aggregate demand (AD). To prevent an increase in inflation, the Federal Reserve would want to reduce AD by decreasing aggregate demand. One of the tools the Federal Reserve can use to do this is to increase interest rates, which would reduce borrowing and spending, and ultimately reduce AD. Therefore, the most likely choice for the Federal Reserve in this scenario would be to increase interest rates.

Figure 26-7 -Refer to Figure 26-7.In the Dynamic AD-AS Model,if the Economy