3.1 3.2 3.1 How does expansionary monetary policy increase spending in the economy compared to howexpansionary fiscal policy inereases spending in the economy?3.2 Give an example of an automatic stabilizer. Explain how automatic stabilizers work in the case ofrecession.

Expansionary Monetary Policy is used by Fed to increase the supply of money in the economy.…

3.1 How does expansionary monetary policy increase spending in the economy compared to how expansionary fiscal policy increases spending in the economy? 3.2 Give an example of an automatic stabilizer. Explain how automatic stabilizers work in the case of recession.

3.1 How does expansionary monetary policy increase spending in the economy compared to how expansionary fiscal policy increases spending in the economy? 3.2 Give an example of an automatic stabilizer. Explain how automatic stabilizers work in the case of recession.

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter24: Fiscal Policy

Section: Chapter Questions

Problem 1P

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Question

3.1 3.2

3.1 How does expansionary monetary policy increase spending in the economy compared to how
expansionary fiscal policy inereases spending in the economy?
3.2 Give an example of an automatic stabilizer. Explain how automatic stabilizers work in the case of
recession.

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Explain how automatic stabilizers work, both on the taxation side and on the spending side, first in a situation where the economy is producing less than potential GDP and then in a situation where the economy Is producing more than potential GDP.
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Specify whether expansionary or contractionary fiscal policy would seem to be most appropriate in response to each of the situations below and sketch a diagram using aggregate demand and aggregate supply curves to illustrate your answer: A recession. A stock market collapse that hurts consumer and business confidence. Extremely rapid growth of exports. Rising inflation. A rise in the natural rate of unemployment. A rise in oil prices.
A government starts off with a total debt of $3.5 billion. In year one, the government runs a deficit of 400 million. In year two, the government runs a deficit of 1 billion. In year three, the government runs a surplus of 200 million. What is the total debt of the government at the end of year three?