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LRAS ( year ) The graph depicts a dynamic aggregate demand ( AD ) and aggregate supply ( AS ) model of the economy. Suppose

LRAS (year ) The graph depicts a dynamic aggregate demand (AD) and aggregate supply (AS) model of the economy. Suppose that in 2015, the economy is in macroeconomic equilibrium, with GDP at GDP (year 1). The Fed projects that in 2016, the aggregate demand curve will be AD (year 2), that potential real GDP will be $15.23 trillion (GDP (year 2)), and that actual real GDP will be $15.00 trillion. LRAS (year 2) SRAS (year 1 SRAS (year 2 Year By how much does projected potential real GDP exceed actual real GDP in 2016? Price level AD year 2 AD (year 1) difference: trillion GDP (year 1) GDP (year 2 Real GDP (trillions of What could the Federal Reserve do to help the economy reach potential real GDP in 2016 Conduct contractionary monetary policy to increase interest rates. It cannot aid the economy . Conduct expansionary monetary policy to decrease interest rates .

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