### Hypothetical Economic Analysis: Federal Reserve and Monetary Policy in 2019#### 1.7 The table below shows hypothetical values for real GDP and the price level in 2019, assuming the Federal Reserve did not use monetary policy:| Year | Potential Real GDP | Real GDP | Price Level ||------|--------------------|-----------------|-------------|| 2018 | $18.5 trillion | $18.5 trillion | 142 || 2019 | $19.0 trillion | $19.4 trillion | 150 |**a) Federal Reserve Monetary Policy Decision for 2019:** If the Federal Reserve aimed to keep real GDP at its potential level in 2019, should it have used an expansionary policy or a contractionary policy? Should the trading desk have bought Treasury bills or sold them?**b) Hypothetical Outcomes with Successful Monetary Policy:** Suppose the Federal Reserve's policy successfully kept real GDP at its potential level in 2019. Indicate whether each of the following would have been higher or lower compared to a scenario where the Fed took no action: - Real GDP - Full-employment real GDP - The inflation rate - The unemployment rate**c) Visual Representation with Graphs:** Draw an aggregate demand (AD) and aggregate supply (AS) graph to illustrate your response. Ensure the graph includes the following: - Long-Run Aggregate Supply (LRAS) curves for 2018 and 2019. - Short-Run Aggregate Supply (SRAS) curves for 2018 and 2019. - Aggregate Demand (AD) curves for 2018 and 2019, both with and without monetary policy actions. - Equilibrium real GDP and the price level in 2019 with and without policy intervention.

GDP that is Gross Domestic Product refers to the monetary value of the final goods and services…

1.7 The hypothetical information in the table below shows what the values for real GDP and the price level would have been in 2019 if the Federal Reserve did not use monetary policy: Real GDP Year 2018 2019 Potential Real GDP $18.5 trillion 19.0 trillion $18.5 trillion 19.4 trillion Price Level a. Real GDP b. Full-employment real GDP c. The inflation rate d. The unemployment rate 142 150 a) If the Fed wanted to keep real GDP at its potential level in 2019, 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 2019. State whether each of the following would be higher or lower than if the Fed had taken no action: c) Draw an aggregate demand and aggregate supply graph to illustrate your answer. Be sure that your graph contains LRAS curves for 2018 and 2019; SRAS curves 2018 and 2019; AD curve for 2018 and 2019, with and without monetary policy actions; and equilibrium real GDP and the price level in 2019 with and without policy.

1.7 The hypothetical information in the table below shows what the values for real GDP and the price level would have been in 2019 if the Federal Reserve did not use monetary policy: Real GDP Year 2018 2019 Potential Real GDP $18.5 trillion 19.0 trillion $18.5 trillion 19.4 trillion Price Level a. Real GDP b. Full-employment real GDP c. The inflation rate d. The unemployment rate 142 150 a) If the Fed wanted to keep real GDP at its potential level in 2019, 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 2019. State whether each of the following would be higher or lower than if the Fed had taken no action: c) Draw an aggregate demand and aggregate supply graph to illustrate your answer. Be sure that your graph contains LRAS curves for 2018 and 2019; SRAS curves 2018 and 2019; AD curve for 2018 and 2019, with and without monetary policy actions; and equilibrium real GDP and the price level in 2019 with and without policy.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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