Answered: The following graph shows a…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Should policymakers use monetary policy, fiscal policy, or both in an effort to stabilize the economy? The following questions address the issue of how monetary and fiscal policies affect the economy and the pros and cons of using these tools to lessen economic fluctuations.

NOTE: make sure to ADJUST GRAPH to the proper formatiom!

NOTE: options for blanks

1. According to the graph, this economy is in ______ (a recession OR an expansion)

2. natural rate of output, the government could use ______ (an expansionary OR a contractionary) monetary policy such as _____ (decreasing taxes OR increasing taxes)

3. __________(leave the economy unchanged OR increase the long run capacoty to produce goods and services OR push the economy beyond the natural rate of output OR fall short of the natural rate of output) once the effects of the policy are fully realized.

Should policymakers use monetary policy, fiscal policy, or both in an effort to stabilize the economy? The following questions address the issue of how
monetary and fiscal policies affect the economy and the pros and cons of using these tools to lessen economic fluctuations.
The following graph shows a hypothetical aggregate-demand (AD) curve, short-run aggregate-supply (AS) curve, and long-run aggregate-supply
(LRAS) curve for the economy in February 2023. According to the graph, this economy is in
. To bring the economy back to the
natural rate of output, the government could use
monetary policy such as
Shift the appropriate curve on the following graph to illustrate the effects of the policy you chose above.
150
LRAS
AS
AD
130
110
AS
AD
70
50
2.0
2.2
2.4
2.6
2.8
OUTPUT (Trillions of dollars)
Suppose that in February 2023, policymakers undertake the type of policy that is necessary to bring the economy back to the natural rate of output,
given the scenario just described. In April 2023, imports decrease, because Canada has implemented trade restrictions on Japanese goods. Because of
the
associated with implementing monetary and fiscal policy, the impact of the policymakers' stabilization policy will likely
once the effects of the policy are fully realized.
PRICE LEVEL

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