Question

Table 15-8 Year | Potential Real GDP | Real GDP | Price Level 2020 | $18.5 trillion | $18.5 trillion | 142 2021 | 19.0 trillion | 19.4 trillion | 150 Refer to Table 15-8. The hypothetical information in the table shows what the values for real GDP and the price level would have been in 2021 if the Federal Reserve did not use monetary policy: a. If the Fed wanted to keep real GDP at its potential level in 2021, should it have used an expansionary policy or a contractionary policy? Should the trading desk have bought T-bills or sold them? b. Suppose the Fed's policy was successful in keeping real GDP at its potential level in 2021. State whether each of the following would be higher or lower than if the Fed had taken no action: (i) Real GDP (ii) Full-employment real GDP (iii) The inflation rate (iv) The unemployment rate c. Draw an aggregate demand and aggregate supply graph to illustrate your answer. Be sure that your graph contains LRAS curves for 2020 and 2021; SRAS curves for 2020 and 2021; AD curve for 2020 and 2021, with and without monetary policy actions; and equilibrium real GDP and the price level in 2021 with and without policy.

          Table 15-8
Year | Potential Real GDP | Real GDP | Price Level
2020 | $18.5 trillion | $18.5 trillion | 142
2021 | 19.0 trillion | 19.4 trillion | 150
Refer to Table 15-8. The hypothetical information in the table shows what the values for real GDP and the price level would have been in 2021 if the Federal Reserve did not use monetary policy:
a.
If the Fed wanted to keep real GDP at its potential level in 2021, should it have used an expansionary policy or a contractionary policy? Should the trading desk have bought T-bills or sold them?
b.
Suppose the Fed's policy was successful in keeping real GDP at its potential level in 2021. State whether each of the following would be higher or lower than if the Fed had taken no action:
(i)
Real GDP
(ii)
Full-employment real GDP
(iii)
The inflation rate
(iv)
The unemployment rate
c.
Draw an aggregate demand and aggregate supply graph to illustrate your answer. Be sure that your graph contains LRAS curves for 2020 and 2021; SRAS curves for 2020 and 2021; AD curve for 2020 and 2021, with and without monetary policy actions; and equilibrium real GDP and the price level in 2021 with and without policy.

Table 15-8
Year | Potential Real GDP | Real GDP | Price Level
2020 | 18.5 trillion |18.5 trillion | 142
2021 | 19.0 trillion | 19.4 trillion | 150
Refer to Table 15-8. The hypothetical information in the table shows what the values for real GDP and the price level would have been in 2021 if the Federal Reserve did not use monetary policy:
a.
If the Fed wanted to keep real GDP at its potential level in 2021, should it have used an expansionary policy or a contractionary policy? Should the trading desk have bought T-bills or sold them?
b.
Suppose the Fed's policy was successful in keeping real GDP at its potential level in 2021. State whether each of the following would be higher or lower than if the Fed had taken no action:
(i)
Real GDP
(ii)
Full-employment real GDP
(iii)
The inflation rate
(iv)
The unemployment rate
c.
Draw an aggregate demand and aggregate supply graph to illustrate your answer. Be sure that your graph contains LRAS curves for 2020 and 2021; SRAS curves for 2020 and 2021; AD curve for 2020 and 2021, with and without monetary policy actions; and equilibrium real GDP and the price level in 2021 with and without policy.

Added by Red P.

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