Question

Suppose that Federal Reserve policy leads to higher interest rates in the U.S.

If the U.S. is a closed economy in the short​ run, real GDP will _________ increase stay the same decrease .
If the U.S. is an open economy real GDP will _______ increase stay the same decrease by ________ more than in a closed economy the same amount as in a closed economy less than in a closed economy .

Answer 1

If the U.S. is an open economy real GDP will decrease by more than in a closed economy.

Step-by-step explanation:

Federal fund rate is the rate of depository fund which banks pay overnight. The rise in fed will cause the banks to pay more interest on the mandated reserve. If the interest rates are increased the real GDP will decrease because there will be reduced investments, less spending and consumption which leads to declined net exports. These all factors lead to decline in the Real GDP of U.S.