Suppose that the stock market experiences a significant and prolonged decline. In response, the Federal Reserve lowers the federal funds interest rate. Not long afterward the interest rate decline, there is a large positive shock to investment spending. As a result of both the monetary policy action and the investment spending shock:
O actual output may go above potential outputO inflation will increase more than the FOMC had intendedO the unemployment rate will be below the natural rateO all of the above
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