Table 18-3
$$\begin{array} { | c | c | c | c | }
\hline \text { Year } & \text { Potential Real GDP } & \text { Real GDP } & \text { Price Level } \
\hline 2013 & \$ 14.0 \text { trillion } & \$ 14.0 \text { trillion } & 150 \
\hline 2014 & 14.5 \text { trillion } & 14.2 \text { trillion } & 152 \
\hline
\end{array}$$
-Refer to Table 18-3.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?

Question

Table 18-3
 $$\begin{array} { | c | c | c | c | } 
\hline \text { Year } & \text { Potential Real GDP } & \text { Real GDP } & \text { Price Level } \
\hline 2013 & \$ 14.0 \text { trillion } & \$ 14.0 \text { trillion } & 150 \
\hline 2014 & 14.5 \text { trillion } & 14.2 \text { trillion } & 152 \
\hline
\end{array}$$
-Refer to Table 18-3.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?

Quizplus · Accepted Answer

If the Congress and the president use fiscal policy successfully to keep real GDP at its potential level in 2014, real GDP will be higher than if they took no action. Also, by keeping real GDP at its potential level, the unemployment rate will be lower than it would have been otherwise. However, since real GDP is at its potential level, there will be upward pressure on prices. Therefore, the inflation rate will also be higher than if no action had been taken. So, real GDP and the inflation rate will be higher.

Table 18-3 -Refer to Table 18-3