If the Fed Believes That Real GDP Is Below Potential

Multiple Choice

If the Fed believes that real GDP is below potential GDP, it will

A) lower interest rates to shift the AD curve to the right and the IA line upward.
B) do nothing and wait for the IA line to shift and return real GDP to potential GDP at a lower inflation rate.
C) lower interest rates to shift the AD curve to the right.
D) lower interest rates to shift the IA line downward.
E) lower interest rates to shift the AD curve to the right and the IA line downward.