Table 26-8 -Refer to Table 26-8

Essay

Table 26-8
$$\begin{array} { | c | c | c | c | } \hline \text { Year } & \text { Potential Real GDP } & \text { Real GDP } & \text { Price Level } \\\hline 2013 & \$ 13.5 \text { trillion } & \$ 13.5 \text { trillion } & 142 \\\hline 2014 & 14.0 \text { trillion } & 14.4 \text { trillion } & 150 \\\hline\end{array}$$
-Refer to Table 26-8.The hypothetical information in the table shows what the values for real GDP and the price level would have been in 2014 if the Federal Reserve did not use monetary policy:
a.If the Fed wanted to keep real GDP at its potential level in 2014,should it have used an expansionary policy or a contractionary policy? Should the trading desk have bought T-bills or sold them?
b.Suppose the Fed's policy was successful in keeping real GDP at its potential level in 2014.State whether each of the following would 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.