If Aggregated Demand Is Growing Faster Than Potential Output, Then

Multiple Choice

If aggregated demand is growing faster than potential output, then the Federal Reserve is likely to

A) lower interest rates because the rate of inflation is falling or is likely to fall.
B) raise interest rates because the rate of inflation is rising or is likely to rise.
C) raise interest rates because the rate of inflation is falling or is likely to fall.
D) lower interest rates because the rate of inflation is rising or is likely to rise.
E) do nothing because it is not clear how the rate of inflation will be affected.