Table 26-1
$$\begin{array} { | c | c | c | c | }
\hline \text { Year } & \text { Potential Real GDP } & \text { Real GDP } & \text { Price Level } \
\hline 2016 & \$ 18.2 \text { trillion } & \$ 18.2 \text { trillion } & 145 \
\hline 2017 & 18.6 \text { trillion } & 18.5 \text { trillion } & 147 \
\hline
\end{array}$$
-Refer to Table 26-1.The hypothetical information in the table shows what the values for real GDP and the price level will be in 2017 if the Fed does not use monetary policy.Which of the following policies makes sense if the Fed wants to keep real GDP at its potential level in 2017?
A)The trading desk should sell Treasury securities.
B)The Fed should lower the target for the federal funds rate.
C)The Fed should pursue contractionary policy.
D)The Fed should lower capital gains taxes.

Question

Table 26-1
 $$\begin{array} { | c | c | c | c | } 
\hline \text { Year } & \text { Potential Real GDP } & \text { Real GDP } & \text { Price Level } \
\hline 2016 & \$ 18.2 \text { trillion } & \$ 18.2 \text { trillion } & 145 \
\hline 2017 & 18.6 \text { trillion } & 18.5 \text { trillion } & 147 \
\hline
\end{array}$$
-Refer to Table 26-1.The hypothetical information in the table shows what the values for real GDP and the price level will be in 2017 if the Fed does not use monetary policy.Which of the following policies makes sense if the Fed wants to keep real GDP at its potential level in 2017?
A)The trading desk should sell Treasury securities.
B)The Fed should lower the target for the federal funds rate.
C)The Fed should pursue contractionary policy.
D)The Fed should lower capital gains taxes.

Quizplus · Accepted Answer

If the Fed wants to keep real GDP at its potential level in 2017, it should pursue expansionary policy, which means increasing the money supply and lowering interest rates. Option B suggests the Fed should lower the target for the federal funds rate, which would encourage banks to lend more and stimulate economic growth. Option A (selling Treasury securities) and option C (pursuing contractionary policy) would decrease the money supply and increase interest rates, which would slow down economic growth. Option D (lowering capital gains taxes) might stimulate investment, but it would not directly affect the money supply or interest rates.

Table 26-1 -Refer to Table 26-1