If the economy is operating below its full employment level, the Fed can

Question

Quizplus · Accepted Answer

If the economy is operating below full employment level, it means there is slack in the labor market and potential resources are not being fully utilized. In this situation, the Fed can increase aggregate demand by increasing the rate of growth of the money supply through expansionary monetary policy. This will lower interest rates, make borrowing easier, and stimulate investment and consumption spending. Ultimately, this will lead to an increase in output and employment, bringing the economy closer to its full employment level. Choices B, C, and D do not make sense as they do not address the root cause of the problem - the shortage of demand in the economy.

If the Economy Is Operating Below Its Full Employment Level