Question

To close a recessionary gap, the Fed ______ interest rates which ______ planned aggregate spending and ______ short-run equilibrium output. reduces; increases; increases raises; decreases; increases raises; decreases; decreases reduces; increases; decreases

Answer 1

Reduces; Increases; Increases

Step-by-step explanation:

Recessionary gap describes a nation opersting at levels below it's full employment level. It is that level where the real GDP is lower than potential GDP at full employment level. Thus, if the Federal government wishes to close the recessionary gap, they could REDUCE the interest rate which will encourage more borrowing for consumption and investment expenditures thereby leading to INCREASES in planned aggregate spending and INCREASES in short run equilibrium output.