If Congress and the president want to keep real GDP at its potential level in 20

Question

If Congress and the president want to keep real GDP at its potential level in 2017, if the federal government does not use fiscal policy: If congress and the president want to keep real GDP at its potential level in 2017, they should use, which would mean If Congress and the president are successful in keeping real GDP at its potential level in 2017, state whether each of the following will be higher, lower, or the same as it would have been if they had taken no action: Real GDP will be Potential real GDP will be The inflation rate will be The unemployment rate will be

Explanation / Answer

(1) In 2017, real GDP < potential GDP. So Congress should use Expansionary Fiscal policy, which would mean higher aggregate demand.

(Please provide the drop-down options in comment section)

(2) If Congress is successful in its expansionary fiscal policy,

- Real GDP will be higher

- Potential GDP will be unchanged

- Inflation rate will be higher

- Unemployment rate will be higher

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