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)increase income tax rates.
B)decrease income tax rates.
C)increase interest rates.
D)decrease interest 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. This action encourages borrowing and spending, which can help increase aggregate demand to better match the growth in aggregate supply.

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