Aggregate Supply, Aggregate Demand, and Long-Run Equilibrium Please list one event that impacts AD (i.e. cause AD to shift to either left or right). Please list one event that impacts the position of short-run AS. Please talk about how a contractionary monetary policy shifts the AD curve.
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Please list one event that impacts AD (i.e. cause AD to shift to either left or right). Please list one event that impacts the position of short-run AS. Please talk about how a contractionary
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- Start with a brief introduction that explains use of Government policy to control the economy. When is it appropriate to use monetary and fiscal policy to stimulate or stabilize the economy? Look at both. When is it inappropriate to use monetary and fiscal policy to stimulate or stabilize the economy? Look at both. What specific fiscal policy tools would you use to stimulate aggregate demand and how? What specific monetary policy tools would you use to stimulate aggregate demand and how? What is your conclusion, should policymakers use the monetary and or fiscal policy, or a combination of both, to stimulate aggregate demand? Explain your reasoning.Read the following excerpts. Identify whether the policy action is fiscal or monetary and expansionary or contractionary. Draw and label the change that would occur on the AD/AS graph as a result of the policy action described in each. Identify what will happen as a result of the policy to the price level, employment, and real GDP. Excerpt from FOMC Statement Released December 16, 2008 “The Federal Open Market Committee decided today to establish a target range for the federal funds rate of 0 to ¼ percent. Since the Committee’s last meeting labor market conditions have deteriorated, and the available data indicate that consumer spending, business investment, and industrial production have declined. Financial markets remain quite strained and credit conditions tight. Overall, the outlook for economic activity has weakened further.” Identify whether the policy action is fiscal or monetary. Identify whether the policy action is expansionary or contractionary. Draw and label the change…Using a correctly labelled aggregate demand and aggregate supply diagram, show how the increase in investment will affect each ofthe following in the short run.i. Output ii. The price level c. Identify one fiscal policy action that could counter the increase in investment. Explain how this policy will affect each of the following.i. Output ii. The price level iii. Nominal interest rates d. i. Identify one monetary policy action that could counter the increase in investmentsii. Using a correctly labelled money market graph, show how this policywill affect nominal interest rates
- As you have learned in Unit 8 (this week), monetary and fiscal policy play important roles in economic stimulation and or stabilization. In this regard: a. When is it appropriate to use monetary and fiscal policy to stimulate or stabilize the economy? b. When is it inappropriate to use monetary and fiscal policy to stimulate or stabilize the economy? c. What specific fiscal policy tools would you use to stimulate aggregate demand and how? d. What specific monetary policy tools would you use to stimulate aggregate demand and how? e. What is your conclusion, should policymakers use the monetary and or fiscal policy to stimulate aggregate demand? Explain briefly.The Aggregate Demand- Aggregate Supply (AD-AS) model can be used to illustrate that by choosing the right combination of measures (policies) it is possible for the economy to grow without it experiencing inflationary pressures. Discuss four supply-side measures that policy makers can implement to expand the economy without increasing the inflationary pressure in the country? (20Determine how each of the following monetary or fiscal policy would shift the aggregate demand curve. Illustrate and explain the following effect. a. Assuming the economy is under full employment, the central bank receives news of a potential economic boom and has decided on a risky measure by conducting contractionary monetary policy. Illustrate and explain the effect of the policy using AD-AS curve.
- The Federal Reserve can use expansionary/contractionary policy to shift the AD curve. Use the AD–AS framework to show how monetary policy should be used to return output to potential GDP when: (i) the aggregate demand curve intersects the short-run aggregate supply curve to the left of potential GDP; and (ii) the aggregate demand curve intersects the short-run aggregate supply curve to the right of potential GDP.True/False and Explain When nominal interest rates are zero, the central bank can still lower them by printing money and purchasing bonds from banks. This increases the supply of loanable funds and stimulates lending. A pro-savings policy by the US would likely reduce the US trade deficit. When savings equals investment, reducing savings and increasing consumption is especially effective in stimulating output. In the dynamic AS-AD model, a perfectly inelastic aggregate supply curve means the central bank cannot control the rate of output growth or the inflation rate. There are an infinite number of combinations of real interest rates and inflation rates consistent with a nominal interest rate of zero.Briefly explain whether each of the following statements is true or false 3. In the AD-AS model, monetary policy can stabilize both the price level and real GDP following a shock to aggregate demand.
- Suppose the Central Bank of Bothnia buys Treasury Bonds. What will be the impact on the price level and real GDP in the country of Bothnia? Would the purchase of treasury bonds be considered expansionary or contractionary policy AND would this be fiscal or monetary policy?Country X, an open economy, has an increase in the demand for money which led to a significant increase in the real interest rates relative to the rest of the world. Explain how this increase in interest rates will affect each of the following for the Country X. Investment The international value of its currency Exports Using a correctly labelled aggregate demand and aggregate supply diagram, show how the change in investment you identified in part (a) will affect each of the following in the short run. Output The price level Identify one fiscal policy action that could counter the effect identified in part (b). Explain how this policy will affect each of the following. Output The price level Nominal interest rates i. Identify one monetary policy action that could counter the effects identified in part (b).…Country X, an open economy, has an increase in the demand for money which led to a significant increase in the real interest rates relative to the rest of the world. Explain how this increase in interest rates will affect each of the following for the Country X. Investment The international value of its currency Exports Using a correctly labelled aggregate demand and aggregate supply diagram, show how the change in investment you identified in part (a) will affect each of the following in the short run. Output The price level Identify one fiscal policy action that could counter the effect identified in part (b). Explain how this policy will affect each of the following. Output The price level Nominal interest rates i. Identify one monetary policy action that could counter the effects identified in part (b).…