Refer to Table 26-2. Consider the hypothetical information in the table above for potential real GDP, real GDP, and the price level in 2016 and in 2017 if the Federal Reserve does not use monetary policy.
If the Fed wants to keep real GDP at its potential level in 2017, it should
A) increase income taxes. B) buy Treasury securities.
C) increase the required reserve ratio. D) sell Treasury securities.
Question 2
If foreign holdings of U.S. dollars decrease, holding all else constant,
A) the balance on the U.S. current account will decrease.
B) the U.S. balance of trade will decrease.
C) the balance on the U.S. financial account will decrease.
D) the balance on the U.S. capital account will decrease.
A hypothetical example of the bottleneck effect.
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