Price level(GDPdeflator,2009 = 100)124122120LRAS 2020$18.0LRAS 2021SRAS2020SRAS2021AD 2021(without policy)AD2021(with policy)AD 202018.4 18.5 Real GDP(trillions of2009 dollars)a. If the Fed does not take any policy action, what will bethe level of real GDP and the price level in 2021?b. If the Fed wants to keep real GDP at its potential levelin 2021, should it use an expansionary policy or acontractionary policy? Should the trading desk bebuying Treasury bills or selling them?c. If the Fed takes no policy action, what will be the infla-tion rate in 2021? If the Fed uses monetary policy tokeep real GDP at its potential level, what will be theinflation rate in 2021?

Real GDP, or real gross domestic product, is a measure of a country's economic output adjusted for…

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Price level (GDP deflator, 009 = 100) 124 122 LRAS 2020 LRAS 2021 SRAS 2020 SRAS2021 AD 2021

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Price level
(GDP
deflator,
2009 = 100)
124
122
120
LRAS 2020
$18.0
LRAS 2021
SRAS2020
SRAS2021
AD 2021
(without policy)
AD2021
(with policy)
AD 2020
18.4 18.5 Real GDP
(trillions of
2009 dollars)
a. If the Fed does not take any policy action, what will be
the level of real GDP and the price level in 2021?
b. If the Fed wants to keep real GDP at its potential level
in 2021, should it use an expansionary policy or a
contractionary policy? Should the trading desk be
buying Treasury bills or selling them?
c. If the Fed takes no policy action, what will be the infla-
tion rate in 2021? If the Fed uses monetary policy to
keep real GDP at its potential level, what will be the
inflation rate in 2021?

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