When current real output exceeds potential real output, the Federal Reserve will _____ interest rates in an effort to fight _____.
A) increase; a recession
B) decrease; a recession
C) decrease; inflation
D) increase; inflation

Question

Quizplus · Accepted Answer

When current real output exceeds potential real output, it indicates an overheating economy, which can lead to inflation. The Federal Reserve increases interest rates to cool down the economy and fight inflation.

When Current Real Output Exceeds Potential Real Output, the Federal