Addressing recession using Fiscal and Monetary Policy tools.Scenario - The US economy is currently experiencing recession.  You have Fiscal and Monetary policy tools available to address this problem: A) To attack the problem of recession, you must select at least one Monetary Policy tool and one Fiscal Policy tool. Write down the name of your Fiscal Policy tool and your Monetary Policy tool.Think the options through and write down your choices. B) Please explain why you selected the tools that you selected and why you did not select the other choices? Do this for both monetary and fiscal policy tools!Specifically, explain what is so good about the tool you selected and what is not so good about the tools you did not select? Do this for both the Monetary Policy tool and the Fiscal Policy tool.  The key here is to use some decision criteria in making your choice. C) Thoroughly and completely explain how your solution (both monetary and fiscal policy tools) would work to solve the problem of recession and indicate the impact your solution would have on the key economic variables. Be specific.   Present this using the chain of events format with up or down arrows to indicate the direction of impact on each variable. I need to see the detail.

Question
Asked Nov 25, 2019
81 views
  1. Addressing recession using Fiscal and Monetary Policy tools.

Scenario - The US economy is currently experiencing recession.  You have Fiscal and Monetary policy tools available to address this problem:

 

A) To attack the problem of recession, you must select at least one Monetary Policy tool and one Fiscal Policy tool. Write down the name of your Fiscal Policy tool and your Monetary Policy tool.

  1. Think the options through and write down your choices.

 

B) Please explain why you selected the tools that you selected and why you did not select the other choices? Do this for both monetary and fiscal policy tools!

  1. Specifically, explain what is so good about the tool you selected and what is not so good about the tools you did not select? Do this for both the Monetary Policy tool and the Fiscal Policy tool.  The key here is to use some decision criteria in making your choice.

 

C) Thoroughly and completely explain how your solution (both monetary and fiscal policy tools) would work to solve the problem of recession and indicate the impact your solution would have on the key economic variables. Be specific.   

  1. Present this using the chain of events format with up or down arrows to indicate the direction of impact on each variable. I need to see the detail.

 

check_circle

Expert Answer

Step 1

Recession is a situation in the economy, when there is general decline in the economic activity. For example, fall in spending and negative economic growth.

To combat the situation of recession, an authority can use both monetary policy and fiscal policy.

help_outline

Image Transcriptionclose

Fiscal policy Expansionary fiscal policy Monetary policy Expansionary monetary policy Increase money supply Tool Increase government expenditure or reduce tax Factor that shift IS and LM curve rate Result Rise in income level, fall in Rise in income level, rise in nterest rate interest rate.

fullscreen
Step 2

Expansionary monetary policy: In a recession, monetary policy will use to cut the interest rates for stimulate spending and investment. Expansionary monetary policy also weakens the exchange rate of an economy that will help in hiking exports.

In the figure, point 1 is the initial economic situation with low production and high interest rate, after using monetary policy, economy move to point 2, where level of income is higher, and rate of interest is lower.

help_outline

Image Transcriptionclose

.LM1 LM2 R1 2 R2 IS 0 Y1 Y2 Level of income Y Interest rate

fullscreen
Step 3

Explanation: In expansionary monetary policy, monetary authority of nation increases the money supply in the market and lower the interest rate. Due to increase in money supply in the market, people ...

Want to see the full answer?

See Solution

Check out a sample Q&A here.

Want to see this answer and more?

Solutions are written by subject experts who are available 24/7. Questions are typically answered within 1 hour.*

See Solution
*Response times may vary by subject and question.
Tagged in

Business

Economics

Related Economics Q&A

Find answers to questions asked by student like you
Show more Q&A
add
question_answer

Q: Hello, I would like help on those assignments. Thank you!

A: Hello. Since your question has multiple sub-parts, we will solve first three sub-parts for you. If y...

question_answer

Q: The economy of a small island nation is based on two​ sectors, agriculture and tourism. Production o...

A: Given two sectors, agriculture (A) and tourism (T), with technology matrix M, output matrix Y, and f...

question_answer

Q: Differentiate between Perfect Competition and Monopoly?

A: The major difference between perfect competition and monopoly form of market areNumber of buyers and...

question_answer

Q: Why do economists and managers pay attention to the measurements of macroeconomic activity? several ...

A: Answer -  Economist and managers pay attention to many measurment of macroeconomics activity " GDP g...

question_answer

Q: Question has been attached below

A: Price Ceiling is the maximum price set by the regulators which can be less or more than the equilibr...

question_answer

Q: Explain why investment in agricultural R & D is a case of market failure

A: Investment in agricultural R & D is a case of market failure as some of the research is unprofit...

question_answer

Q: Over the past 20 years , Mexico has had high inflation and Japan has had low inflation.What do you p...

A: The persistent rise in level of prices in an economy is called inflation.Exchange rate determines th...

question_answer

Q: 3. If given the option to reduce pollution using regulation (equal reduction by each firm) or tradea...

A: The economist would choose tradable permit than reducing pollution using regulation. The tradable pe...

question_answer

Q: What is number 2

A: Answer – As given in the question –Ann’s house is a one of highly similar houses in a large, well kn...