al Exaft Time Left:2:1609 Anthony Nixon: Attempt 1 Suppose the table illustrates

Question

al Exaft Time Left:2:1609 Anthony Nixon: Attempt 1 Suppose the table illustrates the values of real and potential GDP and the price level, if the Federal Reserve does not vote to change their current policy to be more contractionary or expansionary 3 Potential Real GDP $15.1 trillion $15.3 trillion Actual Real GDP Price Level $15.1 trillion $15.4 trillion Year 2014 2015 153 If the Federal Reserve wants to keep real GDP at its potential level in 2015, should the Federal Reserve use a contractionary or expansionary policy? How should it conduct open market operations to achieve this goal? The Federal Reserve should pursue expansionary monetary policy by selling bonds. estion 4 Saved Type here to search 5 6 8 4

Explanation / Answer

Since in 2015, real GDP is higher than potential GDP, so FED should follow contractionary policy,

& It can be done through selling of bonds in open market, as this will lead to withdrawl of money from the market , hence economy will slow down & contraction will happen.GDP will fall .

By buying the bonds, it will inject the money & hence this will lead to expansion & increases GDP

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