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Answer all parts of the following question: Assume that the economy is in a recessionary gap.You are an economic advisor to the Federal Reserve who
Answer all parts of the following question:
Assume that the economy is in a recessionary gap.You are an economic advisor to the Federal Reserve who follows the textbook policy recommendations that we have been studying.
a.What actions should the Federal Reserve take to reduce the output gap?
b.What effect will your recommended actions have on interest rates?
c.Describe the mechanism by which the change in interest rates leads to a reduction in the output gap.
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