Table 15-2

-Refer to Table 15-2.Consider the hypothetical information in the table above for potential real GDP,real GDP and the price level in 2014 and in 2015 if the Federal Reserve does not use monetary policy.If the Fed uses monetary policy successfully to keep real GDP at its potential level in 2015,which of the following will be higher than if the Fed had taken no action?
A)real GDP and the unemployment rate
B)real GDP and the inflation rate
C)real GDP and potential GDP
D)potential GDP and the inflation rate

Question

Table 15-2
 
-Refer to Table 15-2.Consider the hypothetical information in the table above for potential real GDP,real GDP and the price level in 2014 and in 2015 if the Federal Reserve does not use monetary policy.If the Fed uses monetary policy successfully to keep real GDP at its potential level in 2015,which of the following will be higher than if the Fed had taken no action?
A)real GDP and the unemployment rate 
B)real GDP and the inflation rate 
C)real GDP and potential GDP 
D)potential GDP and the inflation rate

Quizplus · Accepted Answer

If the Fed uses monetary policy to keep real GDP at its potential level in 2015, real GDP will be higher than it would have been without intervention. However, this may also result in higher inflation rates as an increase in demand may lead to higher prices. Therefore, real GDP and inflation rate will be higher than if the Fed had taken no action. The other options (A, C, and D) are incorrect as they do not reflect the likely outcome of monetary policy intervention.

Table 15-2 -Refer to Table 15-2.Consider the Hypothetical Information in the Table