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 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 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 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

According to the table, if the Fed does not use monetary policy in 2019, real GDP is projected to be $19.5 trillion while the price level is projected to increase to 106. If the Fed successfully uses monetary policy to keep real GDP at its potential level in 2019, the inflation rate (which is the percentage change in the price level) will be lower than if the Fed had taken no action. Therefore, choice B is the correct answer. Real GDP is not necessarily lower with the implementation of monetary policy.

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