Author Question: Refer to Table 26-4. Suppose the following table illustrates the values of real and potential GDP ... (Read 86 times)

@Brianna17 · **on:** Jun 29, 2018

Refer to Table 26-4. Suppose the following table illustrates the values of real and potential GDP and the price level if the Fed does not vote to change their current policy to be more contractionary or expansionary.

If the Fed wants to keep real GDP at its potential level in 2017, should the Fed use a contractionary or expansionary policy? How should it conduct open market operations to achieve its goal?

Question 2

The seven members of the Board of Governors of the Federal Reserve are appointed by

A) Congress.
B) the Treasury Department.
C) the President.
D) leaders in the banking industry.
E) the Governors of the States.

Pariscourtney · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

The information in the table indicates that if the Fed does not vote to change their current policy to be more contractionary or expansionary, then real GDP will fall below potential GDP in 2017. To keep the economy at potential GDP in 2017, the Fed should use expansionary monetary policy. This would mean that the Fed should direct the trading desk to buy U.S. Treasury bills. If this is done, reserves in the banking system will increase, banks can increase the number of loans, and this should raise the money supply and lower the interest rate.

Answer to Question 2

C