Author Question: How do the Fed's actions influence real GDP and how long does it take for real GDP to respond to the ... (Read 32 times)

jeatrice · **on:** Jun 29, 2018

How do the Fed's actions influence real GDP and how long does it take for real GDP to respond to the Fed's policy changes?

What will be an ideal response?

Question 2

Refer to Figure 4-18. How much of the tax is paid by buyers?

A) 8 B) 5 C) 4 D) 3

Cnarkel · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

The Fed's actions affect real GDP by changing expenditure plans. For instance, an expansionary policy by the Fed that lowers the interest rate increases consumption expenditure, investment, and net exports. All three of these changes boost aggregate demand so that real GDP growth increases. The effect on real GDP is far from immediate because there are time lags in the process. Real GDP initially responds about two years after the policy is initiated.

Answer to Question 2

D