Table 26-2 -Refer to Table 26-2.The Hypothetical Information in the Table Shows

question 96

Essay

Table 26-2

-Refer to Table 26-2.The hypothetical information in the table shows what the values for real GDP and the price level will be in 2011 if the Federal Reserve does not use monetary policy:
a.If the Fed wants to keep real GDP at its potential level in 2011,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 2011.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 2010 and 2011; SRAS curves 2010 and 2011; AD curve for 2010 and 2011,with and without monetary policy actions; and equilibrium real GDP and the price level in 2011 with and without policy.

---

Definitions:

Completion Percentage

In project management and accounting, it refers to the ratio of work completed to the total scope of work, often used for progress billing and revenue recognition.

Equivalent Units

A concept in cost accounting used to convert partially completed goods into an equivalent number of fully completed units for inventory accounting purposes.

Conversion Costs

The combined costs of direct labor and overhead required to transform raw materials into finished goods.

First-In, First-Out

An inventory valuation method where the oldest inventory items are recorded as sold first.