Price level (GDP deflator, 2009 = 100) P1 LRAS₁ GDP* SRASI GDP₁ Real GDP (trillions of 2009 dollars) Unemployment will increase. Employment will decrease. The rate of economic growth will increase. The rate of inflation will decrease. AD₁

Price level (GDP deflator, 2009 = 100) P1 LRAS₁ GDP* SRASI GDP₁ Real GDP (trillions of 2009 dollars) Unemployment will increase. Employment will decrease. The rate of economic growth will increase. The rate of inflation will decrease. AD₁

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter7: Macroeconomic Measurements, Part Ii: Gdp And Real Gdp

Section: Chapter Questions

Problem 12QP

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Question

With the onset of COVID-19, the Fed, led by Fed Chairman Jerome Powell, lowered its target interest rate (the federal funds rate) by 1.5 percentage points, to a range of 0.00-0.25 percent. This was done with 2 rate cuts during March 2020.

Consider the aggregate demand-aggregate supply diagram below, which represents the macroeconomy. Suppose the market is initially (with the onset of COVID) at an equilibrium at point A. What effect will the Fed's actions have on this economy?

Price level
(GDP deflator,
2009 = 100)
P1
LRAS₁
GDP*
SRAS1
Unemployment will increase.
Employment will decrease.
The rate of economic growth will increase.
The rate of inflation will decrease.
AD₁
GDP₁
Real GDP (trillions of 2009 dollars)

Definition Definition Total supply of goods and services in an economy at a certain price level in a specific time period.

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