From an initial long-run macroeconomic equilibrium,if the Federal Reserve anticipated that next year aggregate demand would grow significantly slower than long-run aggregate supply,then the Federal Reserve would most likely
A)decrease interest rates.
B)increase interest rates.
C)decrease income tax rates.
D)increase income tax rates.

Question

Quizplus · Accepted Answer

To counteract the anticipated slower growth in aggregate demand compared to long-run aggregate supply, the Federal Reserve would likely decrease interest rates. Lowering interest rates makes borrowing cheaper, which can stimulate investment and consumption, thereby increasing aggregate demand to better match the growth in aggregate supply.

From an Initial Long-Run Macroeconomic Equilibrium,if the Federal Reserve Anticipated