Table 26-2

-Refer to Table 26-2. Consider the hypothetical information in the table above for potential real GDP, real GDP and the price level in 2014 and in 2015 if the Federal Reserve does not use monetary policy. If the Fed wants to keep real GDP at its potential level in 2015, it should
A) buy Treasury securities.
B) sell Treasury securities.
C) increase the required reserve ratio.
D) increase income taxes.

Question

Table 26-2
 
-Refer to Table 26-2. Consider the hypothetical information in the table above for potential real GDP, real GDP and the price level in 2014 and in 2015 if the Federal Reserve does not use monetary policy. If the Fed wants to keep real GDP at its potential level in 2015, it should
A) buy Treasury securities. 
B) sell Treasury securities. 
C) increase the required reserve ratio. 
D) increase income taxes.

Quizplus · Accepted Answer

Buying Treasury securities increases the money supply, which lowers interest rates and stimulates investment and consumption, helping to increase real GDP to its potential level.

Table 26-2 -Refer to Table 26-2. Consider the Hypothetical Information in the Hypothetical