Question 6 Demand management can be used by both fiscal and monetary policy. Suppose that fiscal policy makers decide to employ an expansionary policy in the aim to stimulate a weak economy. 6.1. Explain how fiscal policy can use both policy instruments at their disposal to stimulate an economy. 6.2. Based on your answer (6.1), illustrate, and explain by aid of the AD-AS model what the identified policy employment by Fiscal Authorities will have on the general price level and the level of real production and income in the economy. 6.3. Illustrate and explain by aid of the Phillips curve, how demand-pull inflation impacts the relationship between unemployment and the inflation rate. [Tip: Include arrows to illustrate the correct direction of all movements and changes in your illustration].

Question 6 Demand management can be used by both fiscal and monetary policy. Suppose that fiscal policy makers decide to employ an expansionary policy in the aim to stimulate a weak economy. 6.1. Explain how fiscal policy can use both policy instruments at their disposal to stimulate an economy. 6.2. Based on your answer (6.1), illustrate, and explain by aid of the AD-AS model what the identified policy employment by Fiscal Authorities will have on the general price level and the level of real production and income in the economy. 6.3. Illustrate and explain by aid of the Phillips curve, how demand-pull inflation impacts the relationship between unemployment and the inflation rate. [Tip: Include arrows to illustrate the correct direction of all movements and changes in your illustration].

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter16: The Influence Of Monetary And Fiscal Policy On Aggregate Demand

Section: Chapter Questions

Problem 8PA

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