When Fed policy is being used to offset an inflationary gap, which of interest rates, investment, net exports and aggregate demand moves in the opposite direction from the others?
A)Aggregate demand.
B)Investment.
C)Net Exports.
D)Interest rates.

Question

When Fed policy is being used to offset an inflationary gap, which of interest rates, investment, net exports and aggregate demand moves in the opposite direction from the others?​
A)​Aggregate demand.
B)​Investment.
C)​Net Exports.
D)​Interest rates.

Quizplus · Accepted Answer

When the Fed policy is used to offset an inflationary gap, the interest rates move in the opposite direction from the others. The Fed increases interest rates to reduce aggregate demand and curb inflation. This reduces investment and net exports, which in turn reduces aggregate demand. Therefore, interest rates move in the opposite direction from investment, net exports, and aggregate demand.

When Fed Policy Is Being Used to Offset an Inflationary