Table 27-4
$$\begin{array} { | c | c | c | c | }
\hline \text { Year } & \text { Potential Real GDP } & \text { Real GDP } & \text { Price Level } \
\hline 2016 & \$ 18.0 \text { trillion } & \$ 18.0 \text { trillion } & 150 \
\hline 2017 & 18.5 \text { trillion } & 18.8 \text { trillion } & 154 \
\hline
\end{array}$$
-Refer to Table 27-4.Consider the hypothetical information in the table above for potential real GDP,real GDP,and the price level in 2016 and in 2017 if Congress and the president do not use fiscal policy.If Congress and the president use fiscal policy successfully to keep real GDP at its potential level in 2017,which of the following will be lower than if Congress and the president had taken no action?
A)real GDP and the unemployment rate
B)real GDP and the inflation rate
C)real GDP and potential GDP
D)potential GDP and the inflation rate

Question

Table 27-4
 $$\begin{array} { | c | c | c | c | } 
\hline \text { Year } & \text { Potential Real GDP } & \text { Real GDP } & \text { Price Level } \
\hline 2016 & \$ 18.0 \text { trillion } & \$ 18.0 \text { trillion } & 150 \
\hline 2017 & 18.5 \text { trillion } & 18.8 \text { trillion } & 154 \
\hline
\end{array}$$
-Refer to Table 27-4.Consider the hypothetical information in the table above for potential real GDP,real GDP,and the price level in 2016 and in 2017 if Congress and the president do not use fiscal policy.If Congress and the president use fiscal policy successfully to keep real GDP at its potential level in 2017,which of the following will be lower than if Congress and the president had taken no action?
A)real GDP and the unemployment rate
B)real GDP and the inflation rate
C)real GDP and potential GDP
D)potential GDP and the inflation rate

Quizplus · Accepted Answer

If Congress and the president use fiscal policy successfully to keep real GDP at its potential level in 2017, the inflation rate will be lower than if no action was taken. This is because using fiscal policy to keep real GDP at potential will decrease the output gap between potential GDP and actual GDP, which will reduce inflationary pressures in the economy. However, real GDP will still be lower than if no action was taken because potential GDP is also lower than in the no-action scenario.

Table 27-4 -Refer to Table 27-4