7. Use of discretionary policy to stabilize the economyShould the government use monetary and fiscal policy in an effort to stabilize the economy? The following questions address the issue of howmonetary and fiscal policies affect the economy, and the pros and cons of using these tools to combat economic fluctuations.The following graph shows a hypothetical aggregate demand curve (AD), short-run aggregate supply curve (AS), and long-run aggregate supply curve(LRAS) for the U.S. economy in March 2023.Suppose the government decides to intervene to bring the economy back to the natural level of output by usingpolicy. Depending on which curve is affected by the government policy, shift either the AS curve or the AD curve to reflect the change that would successfullyrestore the natural level of output.150ASAD130110AS90AD70LRAS50202224262830OUTPUT (Trillions of dollars)Suppose that in March the government undertakes the type of policy that is necessary to bring the economy back to the natural level of output in thepreceding scenario. In July 2023, U.S. exports decrease because China implements trade restrictions on U.S. goods. Because of theassociated with implementing monetary and fiscal policy, the impact of the government's new policy will likelyonce the effects of the policy are fully realized.PRICE LEVEL

Cöre the natural level of output. 150 AS AD 130 110 AS 90 AD 70 LRAS 50 20 22 24 26 28 30 OUTPUT (Trillions of dollars) opose that in March the government undertakes the type of policy that is necessary to bring the economy back to the natural level of output in the ceding scenario. In July 2023, U.S. exports decrease because China implements trade restrictions on U.S. goods. Because of the associated with implementing monetary and fiscal policy, the impact of the government's new policy will likely once the effects of the policy are fully realized.

Cöre the natural level of output. 150 AS AD 130 110 AS 90 AD 70 LRAS 50 20 22 24 26 28 30 OUTPUT (Trillions of dollars) opose that in March the government undertakes the type of policy that is necessary to bring the economy back to the natural level of output in the ceding scenario. In July 2023, U.S. exports decrease because China implements trade restrictions on U.S. goods. Because of the associated with implementing monetary and fiscal policy, the impact of the government's new policy will likely once the effects of the policy are fully realized.

ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter11: Fiscal Policy

Section: Chapter Questions

Problem 3.11P

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Similar questions

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