Table 17-8 -Refer to Table 17-8

question 121

Essay

Table 17-8
$$\begin{array} { | c | c | c | c | } \hline \text { Year } & \text { Potential Real GDP } & \text { Real GDP } & \text { Price Level } \\\hline 2013 & \$ 13.5 \text { trillion } & \$ 13.5 \text { trillion } & 142 \\\hline 2014 & 14.0 \text { trillion } & 14.4 \text { trillion } & 150 \\\hline\end{array}$$
-Refer to Table 17-8.The hypothetical information in the table shows what the values for real GDP and the price level will be in 2014 if the Federal Reserve does not use monetary policy:
a.If the Fed wants to keep real GDP at its potential level in 2014,should it use an expansionary policy or a contractionary policy? Should the trading desk buy T-bills or sell them?
b.Suppose the Fed's policy is successful in keeping real GDP at its potential level in 2014.State whether each of the following will 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 2013 and 2014; SRAS curves 2013 and 2014; AD curve for 2013 and 2014,with and without monetary policy actions; and equilibrium real GDP and the price level in 2014 with and without policy.

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Definitions:

P-value

The probability of obtaining test results at least as extreme as the results actually observed, given that the null hypothesis is true.

Mean Lifetime

The average length of time that an entity (like a product or component) is expected to last under specified conditions.

Critical Value(s)

Critical values are threshold values that define regions where the test statistic leads to the rejection of the null hypothesis.

Significance Level

The probability of rejecting the null hypothesis in a statistical test when it is actually true, used as a threshold for determining the statistical significance of a result.