Question

Why would the Fed intentionally use contractionary monetary policy to reduce real GDP?

A. The Fed intends to reduce unemployment, which occurs if real GDP is greater than potential GDP
B. The Fed intends to reduce real GDP so that real GDP will grow again but at a faster pace
C. The Fed intends to reduce inflation, which occurs if real GDP is greater than potential GDP

Answer 1

C. The Fed intends to reduce inflation, which occurs if real GDP is greater than potential GDP