Table 18-4
$\begin{array}{|c|c|c|c|}
\hline \text { Year } & \text { Potential Real GDP } & \text { Real GDP } & \text { Price Level } \
\hline 2018 & \$ 18.0 \text { trillion } & \$ 18.0 \text { trillion } & 150 \
\hline 2019 & 18.5 \text { trillion } & 18.8 \text { trillion } & 154 \
\hline
\end{array}$
-Refer to Table 18-4.Consider the hypothetical information in the table above for potential real GDP,real GDP,and the price level in 2018 and in 2019 if Congress and the president do not use fiscal policy.If Congress and the president use fiscal policy successfully to keep real GDP at its potential level in 2019,which of the following will be lower than if Congress and the president had taken no action?

Question

Table 18-4
 $\begin{array}{|c|c|c|c|}
\hline \text { Year } & \text { Potential Real GDP } & \text { Real GDP } & \text { Price Level } \
\hline 2018 & \$ 18.0 \text { trillion } & \$ 18.0 \text { trillion } & 150 \
\hline 2019 & 18.5 \text { trillion } & 18.8 \text { trillion } & 154 \
\hline
\end{array}$
-Refer to Table 18-4.Consider the hypothetical information in the table above for potential real GDP,real GDP,and the price level in 2018 and in 2019 if Congress and the president do not use fiscal policy.If Congress and the president use fiscal policy successfully to keep real GDP at its potential level in 2019,which of the following will be lower than if Congress and the president had taken no action?

Quizplus · Accepted Answer

If Congress and the president use fiscal policy successfully to keep real GDP at its potential level in 2019, then the inflation rate will be lower than if they had taken no action. Without any action, the increase in real GDP from 18.0 trillion to 18.8 trillion would have resulted in an increase in the price level from 150 to 154, implying a 2.67% inflation rate [(154-150)/150]. However, if real GDP is kept at its potential level of 18.5 trillion by successful use of fiscal policy, then the inflation rate would be zero since the price level would remain at 150. Therefore, the correct answer is B - real GDP and the inflation rate.

Table 18-4 -Refer to Table 18-4