Table 12.4
-Refer to Table 12.4.Consider the hypothetical information in the table above for potential real GDP, real GDP, and the price level in 2017 and in 2018 if the federal government does not use fiscal policy.If the federal government uses fiscal policy successfully to keep real GDP at its potential level in 2018, which of the following will be higher than if the federal government had taken no action?

Question

Table 12.4 
-Refer to Table 12.4.Consider the hypothetical information in the table above for potential real GDP, real GDP, and the price level in 2017 and in 2018 if the federal government does not use fiscal policy.If the federal government uses fiscal policy successfully to keep real GDP at its potential level in 2018, which of the following will be higher than if the federal government had taken no action?

Quizplus · Accepted Answer

If the federal government successfully uses fiscal policy to keep real GDP at its potential level in 2018, real GDP in 2018 will be higher than it would have been without action. However, this could result in increased inflation, as the economy is already at its potential level and demand may exceed supply, causing prices to rise. Therefore, both real GDP and the inflation rate will be higher than if no action was taken.

Table 12.4 -Refer to Table 12.4.Consider the Hypothetical Information in the Table