Table 16-3

-Refer to Table 16-3.Consider the hypothetical information in the table above for potential real GDP,real GDP and the price level in 2013 and in 2014 if the Congress and the president do not use fiscal policy.If the Congress and the president use fiscal policy successfully to keep real GDP at its potential level in 2014,which of the following will be higher than if the Congress and the president had taken no action?

Question

Table 16-3
 
-Refer to Table 16-3.Consider the hypothetical information in the table above for potential real GDP,real GDP and the price level in 2013 and in 2014 if the Congress and the president do not use fiscal policy.If the Congress and the president use fiscal policy successfully to keep real GDP at its potential level in 2014,which of the following will be higher than if the Congress and the president had taken no action?

Quizplus · Accepted Answer

If the Congress and the president successfully use fiscal policy to keep real GDP at its potential level in 2014, real GDP would be higher than if they had taken no action. However, keeping real GDP at its potential level may lead to an increase in aggregate demand, which can cause an increase in the price level and hence inflation. Therefore, if the Congress and the president use fiscal policy successfully, real GDP and the inflation rate would be higher than if they had taken no action.

Table 16-3 -Refer to Table 16-3.Consider the Hypothetical Information in the Table