Answer the following problem about the application of fiscal and monetary policy

Question

Answer the following problem about the application of fiscal and monetary policy: The situation is that we are in the Great Recession of 2007-2009. Gross Domestic Product has rapidly decreased by over 7% percent (which is very bad). The unemployment rate is 10.1%, which means that over 15 million people are out of work As a member of the Council of Economic Advisors (CEA). what type of fiscal policy would you recommend to the U.S. President in 2009 to recover from that recessionary business cycle? Use the AS-AD model to explain your answer What are the strengths and weaknesses of this type of fiscal policy? Now imagine that you are a member of the FOMC. What type of monetary policy would you recommend to the Federal Reserve Board of Governors? Use the money supply and demand curves to illustrate the benefits of this policy Would your monetary policy recommendation be affected by cyclical asymmetry? Explain Why do Economists say that Fiscal and Monetary Policy work together to help achieve stable long-run economic growth in the United States?

Explanation / Answer

D)

If I am a member of FOMc, I would like to recommend Expansionary Monetary Policy to the Federal Reserve Board of Governors. Simply Expansionary Monetary Policy means increase the money supply to boost the economiy with lowering interest rates.

Graphical representation of Expansionary Monetary policy is as follows:

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