Table 15-3

-Refer to Table 15-3.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 wants to keep real GDP at its potential level in 2019,it should
A)buy Treasury securities.
B)sell Treasury securities.
C)decrease the required reserve ratio.
D)decrease income taxes.

Question

Table 15-3
 
-Refer to Table 15-3.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 wants to keep real GDP at its potential level in 2019,it should
A)buy Treasury securities. 
B)sell Treasury securities. 
C)decrease the required reserve ratio. 
D)decrease income taxes.

Quizplus · Accepted Answer

If the Fed wants to keep real GDP at its potential level in 2019, it should sell Treasury securities. This would reduce the reserves of banks, leading to a decrease in the money supply and higher interest rates, which would decrease investment spending and consumption, leading to a lower aggregate expenditure and a lower real GDP.

Table 15-3 -Refer to Table 15-3.Consider the Hypothetical Information in the Table