If the level of current output suddenly falls below the potential level of output, central bankers would:
A) lower the real interest rate.
B) raise the real interest rate.
C) keep the real interest rate constant and focus on only changing the nominal interest rate.
D) attempt to shift the aggregate expenditures curve.

Question

Quizplus · Accepted Answer

Central bankers would lower the real interest rate to stimulate economic activity and increase output back to its potential level.

If the Level of Current Output Suddenly Falls Below the Potential