Suppose the Following Table Illustrates the Values of Real and Potential

question 62

Essay

Suppose the following table illustrates the values of real and potential GDP if the Reserve Bank of Australia (RBA)does not change its current monetary policy to be more contractionary or expansionary.
$$\begin{array} { | c | c | c | c | } \hline \text { Year } & \begin{array} { c } \text { Potential GDP } \\\text { (dollars) }\end{array} & \text { Real GDP (dollars) } & \text { Price level } \\\hline 2017 & 1.50 \text { trillion } & 1.50 \text { trillion } & 150 \\\hline 2018 & 1.56 \text { trillion } & 1.53 \text { trillion } & 153 \\\hline\end{array}$$ If the RBA wants to keep real GDP at its potential level in 2018,should the RBA use a contractionary or expansionary policy? How should it conduct open market operations to achieve its goal?
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Definitions:

Income Tax Expense

The amount of money that a company is required to pay to the government based on its taxable income.

Interest Expense

The cost incurred by an entity for borrowed funds over a period of time.

Return on Stockholders' Equity

A measure of a company's profitability, calculated as net income divided by average stockholders' equity.

Income Tax Expense

The cost of income taxes, representing the taxpayer's obligation to federal, state, and sometimes local governments, based on earnings before taxes.