When Fed policy is being used to offset a contractionary gap, which of the following variables decreases as a result?
A)Aggregate demand.
B)Investment.
C)Net Exports.
D)None of the above variables decreases as a result of Fed policy to offset a contractionary gap..

Question

When Fed policy is being used to offset a contractionary gap, which of the following variables decreases as a result?
A)​Aggregate demand.
B)​Investment.
C)​Net Exports.
D)​None of the above variables decreases as a result of Fed policy to offset a contractionary gap..

Quizplus · Accepted Answer

When the Federal Reserve (Fed) implements policy to offset a contractionary gap, it typically aims to increase aggregate demand by lowering interest rates. Lower interest rates make borrowing cheaper, which can stimulate investment and spending. Therefore, none of the variables listed (aggregate demand, investment, net exports) would decrease as a result of such a policy; instead, they are likely to increase or remain unaffected.

When Fed Policy Is Being Used to Offset a Contractionary