Table 17-1
$\begin{array}{|c|c|c|c|}
\hline \text { Year } & \text { Potential Real GDP } & \text { Real GDP } & \text { Price Level } \
\hline 2018 & \$ 18.2 \text { trillion } & \$ 18.2 \text { trillion } & 145 \
\hline 2019 & 18.6 \text { trillion } & 18.5 \text { trillion } & 147 \
\hline
\end{array}$
-Refer to Table 17-1.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 17-1
 $\begin{array}{|c|c|c|c|}
\hline \text { Year } & \text { Potential Real GDP } & \text { Real GDP } & \text { Price Level } \
\hline 2018 & \$ 18.2 \text { trillion } & \$ 18.2 \text { trillion } & 145 \
\hline 2019 & 18.6 \text { trillion } & 18.5 \text { trillion } & 147 \
\hline
\end{array}$
-Refer to Table 17-1.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 would lead to a decrease in interest rates, which would encourage borrowing and investment, increasing aggregate demand and potentially keeping real GDP at its potential level. Choices A and C would both be contractionary policies, likely leading to a decrease in real GDP. Choice D, lowering capital gains taxes, would have an uncertain effect on aggregate demand and may not necessarily keep real GDP at its potential level.

Table 17-1 -Refer to Table 17-1