Table 27-3

-Refer to Table 27-3. Consider the hypothetical information in the table above for potential real GDP, real GDP and the price level in 2013 and in 2014 if the Congress and the president do not use fiscal policy. If the Congress and the president use fiscal policy successfully to keep real GDP at its potential level in 2014, which of the following will be higher than if the 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 27-3
 
-Refer to Table 27-3. Consider the hypothetical information in the table above for potential real GDP, real GDP and the price level in 2013 and in 2014 if the Congress and the president do not use fiscal policy. If the Congress and the president use fiscal policy successfully to keep real GDP at its potential level in 2014, which of the following will be higher than if the 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 the Congress and the president use fiscal policy successfully to keep real GDP at its potential level in 2014, then real GDP will be higher than it would be if they had taken no action. This could potentially lead to an increase in the inflation rate, as the higher level of demand could lead to upward pressure on prices. Therefore, the correct answer is B, as both real GDP and the inflation rate would be higher than if no action had been taken.

Table 27-3 -Refer to Table 27-3. Consider the Hypothetical Information in the Hypothetical