Table 15-3

-Refer to Table 15-3.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 lower 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 15-3
 
-Refer to Table 15-3.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 lower 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 does not take any action, real GDP will remain below potential GDP in 2015, leading to a lower inflation rate but higher unemployment. If the Fed uses monetary policy successfully to keep real GDP at its potential level in 2015, it will lead to a lower inflation rate, but real GDP will still be lower than potential GDP, indicating a slower economic growth rate overall. Therefore, the only option that fits is B, where real GDP and the inflation rate will be lower if the Fed takes action to keep real GDP at potential.

Table 15-3 -Refer to Table 15-3.Consider the Hypothetical Information in the Table