Consider the hypothetical information in Table 17.2 for potential GDP,real GDP and the price level in 2016 and in 2017 if the Reserve Bank of Australia does not use monetary policy.If the RBA uses monetary policy successfully to keep real GDP at its potential level in 2017,which of the following will be lower than if the RBA had taken no action?

Question

Quizplus · Accepted Answer

If the RBA uses monetary policy to keep real GDP at its potential level in 2017, the inflation rate will be lower than if no action is taken. This is because the RBA will use contractionary monetary policy to slow down the growth of the economy, which will lead to lower inflation. Real GDP will also be lower than if no action is taken, as the RBA is using contractionary policy to limit economic growth. Therefore, the best choice is B, which states that real GDP and the inflation rate will be lower than if the RBA had taken no action.

Consider the Hypothetical Information in Table 17