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 uses monetary policy successfully to keep real GDP at its potential level in 2015,which of the following will be lower than if the Fed had taken no action?

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 uses monetary policy successfully to keep real GDP at its potential level in 2015,which of the following will be lower than if the Fed had taken no action?

Quizplus · Accepted Answer

If the Fed takes no action, real GDP will be above potential GDP in 2015, which will lead to an increase in the inflation rate. However, if the Fed successfully uses monetary policy to keep real GDP at its potential level in 2015, then real GDP will be lower than it would have been without the monetary policy intervention. However, the inflation rate will be lower than it would have been without the Fed's actions because of the lower real GDP. Therefore, the correct answer is B, real GDP and the inflation rate.

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