Suppose the Following Table Illustrates the Values of Real and Potential

question 66

Essay

Suppose the following table illustrates the values of real and potential GDP and the price level,if the Reserve Bank of Australia (RBA)does not change its current policy to be more contractionary or expansionary.
$$\begin{array} { | c | c | c | c | } \hline \text { Year } & \begin{array} { c } \text { Potential GDP } \\\text { (dollars) }\end{array} & \text { Real GDP (dollars) } & \text { Price level } \\\hline 2017 & 1.51 \text { trillion } & 1.51 \text { trillion } & 150 \\\hline 2018 & 1.54 \text { trillion } & 1.56 \text { trillion } & 155 \\\hline\end{array}$$ If the RBA wants to keep real GDP at its potential level in 2018,should the RBA use a contractionary or expansionary policy? Should it raise or lower its interest rate target? How should it conduct open market operations to achieve its goal?
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Definitions:

Outstanding Shares

Outstanding shares refer to the total number of shares of a corporation that are currently owned by all its shareholders, including share blocks held by institutional investors and restricted shares owned by the company’s officers and insiders.

Debt-equity Ratio

A measure of a company's financial leverage, calculated by dividing its total liabilities by stockholders' equity.

Price/earnings Ratio

A valuation metric for a stock, calculated as the market price per share divided by the earnings per share.

Share Repurchase

A corporate action in which a company buys back its own shares from the marketplace, which can increase the value of remaining shares.