Table 26-3

-Refer to Table 26-3. Consider the hypothetical information in the table above for potential real GDP, real GDP, and the price level in 2018 and in 2019 if the Federal Reserve does not use monetary policy. If the Fed uses monetary policy successfully to keep real GDP at its potential level in 2019, which of the following will be lower than if the Fed 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 26-3
 
-Refer to Table 26-3. Consider the hypothetical information in the table above for potential real GDP, real GDP, and the price level in 2018 and in 2019 if the Federal Reserve does not use monetary policy. If the Fed uses monetary policy successfully to keep real GDP at its potential level in 2019, which of the following will be lower than if the Fed 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 the Fed uses monetary policy to keep real GDP at its potential level, the inflation rate will be lower than if no action was taken, as the economy would not overheat. Real GDP would remain at its potential level, not lower.

Table 26-3 -Refer to Table 26-3. Consider the Hypothetical Information in the Hypothetical