Author Question: Refer to Table 15-5. Suppose the table above illustrates the values of real and potential GDP and ... (Read 167 times)

javeds · **on:** Jun 29, 2018

Refer to Table 15-5. Suppose the table above 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.

Suppose that the Fed uses an appropriate policy and is successful in keeping real GDP at potential in 2017. State whether each of the following will be higher or lower than if the Fed had taken no action:
a. Real GDP
b. Potential real GDP
c. The price level
d. The unemployment rate

Question 2

Assuming the United States is the domestic country, if the real exchange rate between the United States and France increases from 1.5 to 1.8,

A) the prices of U.S. goods and services have increased by 53 relative to France.
B) the prices of U.S. goods and services have decreased by 16 relative to France.
C) the prices of U.S. goods and services have increased by 20 relative to France.
D) the prices of U.S. goods and services have increased by 3 relative to France.

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

Answer to Question 1

If the Fed's policy was successful, real GDP in 2017 will rise from 18.5 trillion to the level of potential GDP in 2017 which is 18.7 trillion. Potential GDP is not influenced by monetary policy so it should stay at 18.7 trillion. Since expansionary monetary policy increases AD, the short-run equilibrium will move up the short-run aggregate supply curve and the price level will be higher. Finally, because the level of real GDP is higher with policy, the unemployment rate will be lower than it would have been without the change in policy.

Answer to Question 2

C