Table 15-1

-Refer to Table 15-1.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 15-1
 
-Refer to Table 15-1.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

The best choice to keep real GDP at its potential level in 2019 is to lower the target for the federal funds rate. This would stimulate borrowing and spending, leading to an increase in aggregate demand and therefore real GDP. The other options listed do not directly address the issue of real GDP and are therefore not as effective. Selling Treasury securities (A) would decrease the money supply and lead to a contractionary policy (C), which could lead to a decrease in real GDP. Lowering capital gains taxes (D) could provide an incentive for investment, but may not necessarily stimulate consumption and may not directly impact real GDP.

Table 15-1 -Refer to Table 15-1.The Hypothetical Information in the Table Shows