If an economy is operating at an aggregate output level above its potential output level, the Federal Reserve may:

Question

Quizplus · Accepted Answer

If an economy is operating at an aggregate output level above its potential output level, it may result in inflationary pressures. To counteract this, the Federal Reserve may conduct an open market sale, which involves selling government securities, thereby decreasing the money supply and increasing interest rates. This, in turn, can reduce aggregate demand and help bring the economy back to its potential output level.

If an Economy Is Operating at an Aggregate Output Level