Assume the economy is experiencing an inflationary gap, Keynesian economists believe that:
a. flexible wages will restore full employment.
b. the Federal Reserve should lower the interest rate.
c. the federal government should decrease spending to shift the aggregate demand curve leftward.
d. the federal government should increase spending to shift the aggregate demand curve rightward.
c
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Real business cycle (RBC) theory predicts that the main source of economic fluctuations is represented by
What actions could the Federal Reserve take to achieve consistent growth in real GDP at 4 percent per year?
A) The Fed could follow contractionary monetary policy that would reduce the federal funds rate to zero so investment will rise consistently. B) The Fed could maintain a growth rate of the money supply of 4 percent, regardless of whether inflation was rising or falling in the economy. C) The Fed has no direct control over real GDP in the long run, so there are no actions it could take to achieve that goal. D) The Fed could increase the growth rate of the money supply by 1% each year until the inflation rate was exactly equal to 4 percent.