Table 18-6 -Refer to Table 18-6

question 167

Essay

Table 18-6
$\begin{array}{|c|c|c|c|}\hline \text { Year } & \text { Potential Real GDP } & \text { Real GDP } & \text { Price Level } \\\hline 1 & \$ 11.0 \text { trillion } & \$ 11.0 \text { trillion } & 100 \\\hline 2 & 11.5 \text { trillion } & 11.7 \text { trillion } & 109 \\\hline\end{array}$
-Refer to Table 18-6.Suppose the economy is in the state described by the table above.What problem will occur in the economy if no policy is pursued? What fiscal policy tools could be used to combat the problem? Draw a dynamic aggregate demand and aggregate supply diagram to illustrate the appropriate fiscal policy to use in this situation.

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Definitions:

Minimizes Profit

A situation or strategy that unintentionally reduces the potential earnings or efficiency of a business operation.

Aggregate Planning

A process by which a company determines optimal levels of capacity, production, subcontracting, inventory, stockouts, and even pricing over a specified time horizon.

Capacity

The maximum number of goods a company can produce or the amount of work it can perform in a given time period, under current conditions.

Production

The process of creating goods and services through the combination of labor, materials, and machinery.