Table 16-4

-Refer to Table 16-4.Consider the hypothetical information in the table above for potential real GDP,real GDP,and the price level in 2018 and in 2019 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 2019,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 16-4
 
-Refer to Table 16-4.Consider the hypothetical information in the table above for potential real GDP,real GDP,and the price level in 2018 and in 2019 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 2019,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 2019, the inflation rate will be lower than if no action was taken. This is because the economy will be producing at its potential, reducing the pressure on prices to rise. However, real GDP will be lower than in the scenario where no action was taken, as fiscal policy reduces aggregate demand, leading to lower output. Therefore, the correct choice is B.

Table 16-4 -Refer to Table 16-4.Consider the Hypothetical Information in the Table