Figure 26-11
-Refer to Figure 26-11. In the dynamic model of AD-AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, the Federal Reserve would most likely
A) increase interest rates.
B) decrease interest rates.
C) not change interest rates.
D) decrease the inflation rate.

Question

Figure 26-11 
-Refer to Figure 26-11. In the dynamic model of AD-AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, the Federal Reserve would most likely
A) increase interest rates. 
B) decrease interest rates. 
C) not change interest rates. 
D) decrease the inflation rate.

Quizplus · Accepted Answer

If the economy is moving from point A to point B, it suggests a potential slowdown or recession. To stimulate economic activity, the Federal Reserve would likely decrease interest rates to encourage borrowing and investment.

Figure 26-11 -Refer to Figure 26-11. in the Dynamic Model of AD-AS