Table 16-4

-Refer to Table 16-4.Consider the hypothetical information in the table above for potential real GDP,real GDP,and the price level in 2016 and in 2017 if Congress and the president do not use fiscal policy.If Congress and the president use fiscal policy successfully to keep real GDP at its potential level in 2017,which of the following will be lower than if Congress and the president had taken no action?

Question

Table 16-4
 
-Refer to Table 16-4.Consider the hypothetical information in the table above for potential real GDP,real GDP,and the price level in 2016 and in 2017 if Congress and the president do not use fiscal policy.If Congress and the president use fiscal policy successfully to keep real GDP at its potential level in 2017,which of the following will be lower than if Congress and the president had taken no action?

Quizplus · Accepted Answer

If Congress and the president use fiscal policy successfully to keep real GDP at its potential level in 2017, the inflation rate will be lower than if they had taken no action. This is because if real GDP is at its potential level, there will be no excess demand in the economy, which would have led to an increase in prices. Therefore, the inflation rate will be lower than if Congress and the president had taken no action. However, real GDP will still be lower than the potential GDP as there would have been a period of recession in 2016, which would have had an impact on the economy.

Table 16-4 -Refer to Table 16-4.Consider the Hypothetical Information in the Table