Table 15-8 -Refer to Table 15-8.The Hypothetical Information in the Table Shows

question 254

Essay

Table 15-8

-Refer to Table 15-8.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:

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Withdrawal Reflex

A spinal reflex that causes immediate withdrawal from a painful or harmful stimulus.

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Neurons that transmit impulses between other neurons, especially as part of reflex arcs in the nervous system.

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Natural pain-relieving peptides produced by the brain that also enhance feelings of pleasure.