Other things equal, the level of real GDP will tend to increase in the short run:
A)if reserve requirements are decreased.
B)if the Fed decreases the interest rate it pays on bank reserves
C)if there is an open market purchase by the Fed.
D)all of the above

Question

Other things equal, the level of real GDP will tend to increase in the short run:​
A)​if reserve requirements are decreased.
B)​if the Fed decreases the interest rate it pays on bank reserves
C)​if there is an open market purchase by the Fed.
D)​all of the above

Quizplus · Accepted Answer

All of the above policy actions are expansionary monetary policies that increase the supply of money and credit in the economy. As a result, businesses and consumers are likely to increase their spending, which leads to an increase in aggregate demand and real GDP. Decreasing reserve requirements and decreasing the interest rate on bank reserves encourage banks to lend more, while open market purchases inject new money directly into the economy.

Other Things Equal, the Level of Real GDP Will Tend