In an economy where planned aggregate spending is given by PAE = 3,000 + .75Y ? 10,000r, the central bank is currently setting the interest rate at 0.06 (6 percent). If potential output equals 9,500, the central bank must the interest rate to close the gap.

A. lower; recessionary
B. lower; expansionary
C. raise; expansionary
D. raise; recessionary

Answer: C

Economics

The amount of required reserves a bank holds depends on the

A) required reserve ratio. B) demand-deposit ratio. C) excess-reserve ratio. D) currency ratio.

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Economics

Which of the following would not result from a price ceiling (set below the equilibrium price)?

A) a shortage B) fewer exchanges C) an increase in supply D) nonprice rationing devices

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Economics

In an economy where planned aggregate spending is given by PAE = 3,000 + .75Y ? 10,000r, the central bank is currently setting the interest rate at 0.06 (6 percent). If potential output equals 9,500, the central bank must ________ the interest rate to close the ________ gap.