Suppose the economy is producing below the potential level, Business Economics

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Suppose the economy is producing below the potential level

Suppose the economy is producing below the potential level of output. If the Fed decided to use open market operations (OMOs) to bring about production at the potential level of output, will they buy or sell government securities? Illustrate your answer in the money market and the AD-AS diagram. Determine what happens to the interest rate, investment spending, autonomous consumption, aggregate demand, the price level, and rGDP.

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Business Economics: Suppose the economy is producing below the potential level

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