Table 12.5
-Refer to Table 12.5.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 lower than if the federal government had taken no action?

Question

Table 12.5 
-Refer to Table 12.5.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 lower than if the federal government had taken no action?

Quizplus · Accepted Answer

If the federal government uses fiscal policy successfully to keep real GDP at its potential level in 2018, the inflation rate would be lower than if the government had taken no action. This is because when real GDP is at its potential level, there is no upward pressure on prices due to excess demand, which is a major cause of inflation. However, real GDP may still be lower than it would be in the absence of fiscal policy, as some government spending or tax changes may decrease aggregate demand.

Table 12.5 -Refer to Table 12.5.Consider the Hypothetical Information in the Table