Consider the Hypothetical Information in the Following Table for Potential

question 11

Multiple Choice

Consider the hypothetical information in the following table for potential GDP,real GDP,and the price level in 2016 and in 2017 if the government does not use fiscal policy. $$\begin{array} { | c | c | c | c | } \hline \text { Year } & \text { Potential GDP } & \text { Real GDP } & \text { Price Level } \\\hline 2016 & \$ 1.5 \text { trillion } & \$ 1.5 \text { trillion } & 150 \\\hline 2017 & \$ 1.7 \text { trillion } & \$ 1.8 \text { trillion } & 154 \\\hline\end{array}$$ If the government wants control inflation while keeping real GDP at its potential level in 2017,it should ________.

• A) increase income taxes
• B) increase government purchases
• C) decrease interest rates
• D) increase interest rates

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Definitions:

Opportunity Cost

The expense incurred by not choosing the second-best option available when a decision is made or an action is taken.

Pure Capitalism

An economic system characterized by private ownership of the means of production and where investments, distribution, income, production, and prices are determined by the market.

Owns No Resources

The condition of not having access to or control over any assets, capital, or means of production.

Production Possibilities Frontier

A curve that shows the different combinations of various goods that a country can produce given certain resources and technology.