Table 26-1

-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 2019 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 2019?
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
 
-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 2019 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 2019?
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

Lowering the target for the federal funds rate is an expansionary monetary policy that can increase real GDP to its potential level by encouraging borrowing and spending.

Table 26-1 -Refer to Table 26-1. the Hypothetical Information in the Table