What can we expect from the Federal Reserve Bank if it seeks to move the economy in the direction of long-run macroeconomic equilibrium?
OA. The Fed will pursue a contractionary fiscal policy.
B. The Fed will pursue an expansionary monetary policy.
OC. The Fed will pursue a contractionary monetary policy.
OD. The Fed will pursue an expansionary fiscal policy.
If the Fed's policy is successful, what is the effect on the following indicators?
Actual real GDP decreases
Potential real GDP does not change
Price level decreases
Unemployment increases

Question

11-05-2024
Business

Answered

What can we expect from the Federal Reserve Bank if it seeks to move the economy in the direction of long-run macroeconomic equilibrium?
OA. The Fed will pursue a contractionary fiscal policy.
B. The Fed will pursue an expansionary monetary policy.
OC. The Fed will pursue a contractionary monetary policy.
OD. The Fed will pursue an expansionary fiscal policy.
If the Fed's policy is successful, what is the effect on the following indicators?
Actual real GDP decreases
Potential real GDP does not change
Price level decreases
Unemployment increases

Verified Answer :

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GinnyAnswer GinnyAnswer · Answer 1 · 2024-05-11T16:43:16-04:00

Final answer:

The Federal Reserve's utilization of contractionary monetary policy can lead to lower real GDP, decreased price levels, and increased unemployment as indicators of successful economic adjustment.

Explanation:

Contractionary monetary policy involves the Federal Reserve decreasing the supply of money, which raises interest rates, reduces borrowing for investment and consumption, and shifts aggregate demand left, resulting in a lower price level and potentially lower real GDP in the short run.

When actual real GDP decreases and the price level decreases while unemployment increases, it indicates a contractionary monetary policy by the Federal Reserve being successful in moving the economy towards long-run macroeconomic equilibrium.

Overall, the Federal Reserve would likely pursue a contractionary monetary policy to address such economic conditions and steer the economy towards stability.

Learn more about Federal Reserve Bank and long-run macroeconomic equilibrium here:

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