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Assume the U.S. economy is in a recession operating below potential output (the real GDP) and the Federal Reserve System takes appropriate monetary policy actions

Assume the U.S. economy is in a recession operating below potential output (the real GDP) and the Federal Reserve System takes appropriate monetary policy actions to close the recessionary gap (see Figure 5). Anchored in this essential statement, answer the following questions on how the monetary policy tools are used to deal with the recessionary gaps.

Figure 5

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