The hypothetical information in the following table shows what the situation will be in 2021 if Congress and the president do not use fiscal policy:

a. If Congress and the president want to keep real GDP at its potential level in 2021, should they use an expansionary policy or a contractionary policy? In your answer, be sure to explain whether Congress and the president should increase or decrease government purchases and taxes. Draw an aggregate demand and aggregate supply graph to illustrate your answer. Be sure that your graph contains LRAS curves for 2020 and 2021; SRAS curves for 2020 and 2021; AD curves for 2020 and 2021, with and without fiscal policy action; and equilibrium real GDP and the price level in 2021, with and without fiscal policy.
b. If Congress and the president are successful in keeping real GDP at its potential level in 2021, state whether each of the following will be higher, lower, or the same as it would have been if they had taken no action.
i. Real GDP
ii. Potential GDP
iii. The inflation rate
iv. The unemployment rate

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Potential Price Level Year GDP Real GDP $18.0 trillion 18.4 trillion $18.0 trillion 18.0 trillion 2020 120.3 2021 122.7