Question $56(2$ points$)$

If the Fed lowers the interest rate, in the long run, what happens to potential GDP$?$

potential GDP increases

potential GDP stays the same

potential GDP decreases

Suppose that banks are less able to raise funds and so lend less. Consequently, because people and households are less able to borrow, they spend less at any given price level than they would otherwise. The crisis is persistent so lending should remain depressed for some time.