Table 15-1

-Refer to Table 15-1.The hypothetical information in the table shows what the values for real GDP and the price level will be in 2017 if the Fed does not use monetary policy.Which of the following policies makes sense if the Fed wants to keep real GDP at its potential level in 2017?
A)The trading desk should sell Treasury securities.
B)The Fed should lower the target for the federal funds rate.
C)The Fed should pursue contractionary policy.
D)The Fed should lower capital gains taxes.

Question

Table 15-1
 
-Refer to Table 15-1.The hypothetical information in the table shows what the values for real GDP and the price level will be in 2017 if the Fed does not use monetary policy.Which of the following policies makes sense if the Fed wants to keep real GDP at its potential level in 2017?
A)The trading desk should sell Treasury securities. 
B)The Fed should lower the target for the federal funds rate. 
C)The Fed should pursue contractionary policy. 
D)The Fed should lower capital gains taxes.

Quizplus · Accepted Answer

Lowering the target for the federal funds rate is an expansionary monetary policy that causes interest rates to decline and investment and consumer spending to increase, which would help keep real GDP at its potential level. Selling Treasury securities (choice A) is a contractionary policy that reduces the money supply and could lead to a decrease in real GDP. Pursuing contractionary policy (choice C) is not aligned with the goal of keeping real GDP at its potential level. Lowering capital gains taxes (choice D) is a fiscal policy tool, not a monetary policy tool, and would not directly impact real GDP in 2017.

Table 15-1 -Refer to Table 15-1.The Hypothetical Information in the Table Shows