1. Suppose the economy has fallen into a recession (output level ?0), and the federal government wants to return the economy to its original level of output (?). Respond to each of the following questions using appropriate diagrams and explanations. (a) If policy makers can only use fiscal tools, what should they do? (b) If policy makers can only use monetary tools, what should they do? (c) What should they do if they want to return output to its original level but keep investment from changing?
1. Suppose the economy has fallen into a recession (output level ?0), and the federal government wants to return the economy to its original level of output (?). Respond to each of the following questions using appropriate diagrams and explanations. (a) If policy makers can only use fiscal tools, what should they do? (b) If policy makers can only use monetary tools, what should they do? (c) What should they do if they want to return output to its original level but keep investment from changing?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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1. Suppose the economy has fallen into a recession (output level ?0),
and the federal government wants to return the economy to its
original level of output (?). Respond to each of the following
questions using appropriate diagrams and explanations.
(a) If policy makers can only use fiscal tools, what should they do?
(b) If policy makers can only use monetary tools, what should they do?
(c) What should they do if they want to return output to its original level but keep investment from changing?
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