Refer to the figure below.Based on the diagram, if potential output equals 5,000 and the real interest rate is 1%, then there is ______ gap and the Fed must ______ the real interest rate so that output will equal potential output.
A)a recessionary; raise
B)a recessionary; reduce
C)an expansionary; reduce
D)an expansionary; raise

Question

Refer to the figure below.Based on the diagram, if potential output equals 5,000 and the real interest rate is 1%, then there is ______ gap and the Fed must ______ the real interest rate so that output will equal potential output. 
A)a recessionary; raise 
B)a recessionary; reduce 
C)an expansionary; reduce 
D)an expansionary; raise

Quizplus · Accepted Answer

The Answer of Refer to the figure below.Based on the diagram, if potential output equals 5,000 and the real interest rate is 1%, then there is ______ gap and the Fed must ______ the real interest rate so that output will equal potential output. 
A)a recessionary; raise 
B)a recessionary; reduce 
C)an expansionary; reduce 
D)an expansionary; raise

Refer to the Figure Below