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Suppose That Real GDP Has Been Above Potential GDP for Some

question 35

Essay

Suppose that real GDP has been above potential GDP for some period of time. The government is considering a reduction in spending, and the Federal Reserve is trying to determine what is likely to happen to inflation. Trace out two possible scenarios that could occur as a result of decreased government spending. Be sure to comment on the long-run inflation level in each case.


Definitions:

Time Sampling

A behavioral observation technique that involves observing the presence or absence of behaviors within specific time intervals.

Frequency

The rate at which an event or behavior occurs over a specified period of time.

Anecdotal

Pertaining to a short and interesting story or personal account, often used as informal evidence to support a point.

Duration

The total time period during which an event or condition exists or persists.

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