Please answer with explanation, thank you Briefly answer the 4 policy questions
ID: 1122789 • Letter: P
Question
Please answer with explanation, thank you
Briefly answer the 4 policy questions that follow, limiting your responses to a maximum of 3 sentences/question 1. Explain the fiscal policy actions used to stimulate the economy during a recession. In your response, include the expected impact on AD (aggregate demand), real GDP, the price level and employment. What is this type of fiscal policy called? Explain the monetary policy actions used to stimulate the economy during a recession. In your response, include the expected impact on AD, real GDP, the price level and unemployment. What is this type of monetary policy called? 2. 3. Explain the fiscal policy actions used to stabilize the economy in times of inflation. What is this type of fiscal policy called? . Explain the monetary policy actions used to stabilize the economy in times of inflation. What is this type of monetary policy called?Explanation / Answer
(1) The appropriate fiscal policy during a recession is to increase government spending and/or to decrease tax. Either of these measures will increase aggregate demand, shifting AD curve rightward, which will increase real GDP and price level, increasing employment. This type of policy is called Expansionary fiscal policy.
(2) During recession, the monetary policy measures include open market purchase of government securities, and/or lowering required reserves ratio and/or lowering discount rate. Any of these policies will increase money supply, lowering interest rate which will increase consumption and investment demand, in turn raising aggregate demand, shifting AD curve rightward, which will increase real GDP and price level, increasing employment. This type of policy is called Expansionary monetary policy.
(3) The appropriate fiscal policy during high inflation is to decrease government spending and/or to increase tax. Either of these measures will decrease aggregate demand, shifting AD curve leftward, which will decrease real GDP and price level (lowering inflation). This type of policy is called Contractionary fiscal policy.
(4) During high inflation, the monetary policy measures include open market sale of government securities, and/or increasing required reserves ratio and/or increasing discount rate. Any of these policies will decrease money supply, decreasing interest rate which will decrease consumption and investment demand, in turn lowering aggregate demand, shifting AD curve leftward, which will decrease real GDP and price level (lowering inflation). This type of policy is called Contractionary monetary policy.