LAS SAS 130 SASo 120 8 110 100a AD1 ADo 0911 3 1517 19 Reol

LAS SAS 130 SASo 120 8 110 100a AD1 ADo 0911 3 1517 19 Reol GDP trillions of 2005 dollars At point A and the Fed lowers the federal funds rate, to which point would the economy move? What happens to output and unemployment? At point Cand the Fed raises the federal funds rate, to which point should the economy move? What happens to output and unemployment? 10. If the economy is currently: a. b.

Solution

Ans

1 To B because AD shifts rightwards. Output will rise and unemployment fall

2 D. AD shifts leftwards.unemployment will rise and output fall

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