Pleass can I get a quick answer asap?Thanks Monetary and Fiscal Policy in a Rece
ID: 1118890 • Letter: P
Question
Pleass can I get a quick answer asap?Thanks
Monetary and Fiscal Policy in a Recessiorn Assume that the United States, an open economy, has slipped into a recession F market operations to lower the federal funds rate by 0 5 percent (50 basis points) Second, Congress and the president can pass legislation to cut income taxes By reviewing the scenario address the following questions in detail: y, would the Federal Reserve have to lower the federal funds rate by more or less than 50 basis points in order to have the same effect on aggregate demand as in an open economy?Explanation / Answer
Answer : No, it has not same effect because in an open economy aggregate demand is flatter than the closed economy. If fed reduces fund rate, ultimate price level reduced than there is more increase in the demand of the good in an open economy because there is resulted increase in the demand of forgien investment. In open economy they take international trade into contact where as in closed economy is restricted so with decrease in fed fund rate , forgien investment is not attracted. This shows that there is increase in aggregate demand more in open economy as compare to closed economy.