Refer to Table 12.2 for the following questions.
Table 12.2

-Consider the hypothetical information in Table 12.2 for potential GDP, real GDP and the price level in 2016 and in 2017 if the Reserve Bank of Australia does not use monetary policy. If the RBA uses monetary policy successfully to keep real GDP at its potential level in 2017, which of the following will be lower than if the RBA had taken no action?

Question

Refer to Table 12.2 for the following questions.
Table 12.2
 
-Consider the hypothetical information in Table 12.2 for potential GDP, real GDP and the price level in 2016 and in 2017 if the Reserve Bank of Australia does not use monetary policy. If the RBA uses monetary policy successfully to keep real GDP at its potential level in 2017, which of the following will be lower than if the RBA had taken no action?

Quizplus · Accepted Answer

If the RBA does not use monetary policy, real GDP would increase above its potential level which would increase the inflation rate. However, if the RBA uses monetary policy successfully to keep real GDP at its potential level, real GDP would be lower than if the RBA had taken no action. However, the inflation rate would be lower than if the RBA had taken no action, as real GDP is at its potential level and there is no demand-pull inflation. Therefore, the best choice is B.

Refer to Table 12.2 for the Following Questions