1. Use of discretionary policy to stabilize the economy 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 curve (AD), short-run aggregate supply curve (AS), and long-run aggregate supply curve (LRAS) for the economy in May 2020. According to the graph, this economy is in To bring the economy back to the natural level monetary or fiscal policy such as of output, the Federal Open Market Committee (FOMC) could use Shift the appropriate curve on the following graph to illustrate the effects of the policy you chose above. PRICE LEVEL 150 130 110 LRAS AS AD þ AS

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
icon
Related questions
Question
100%
1. Use of discretionary policy to stabilize the economy
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 curve (AD), short-run aggregate supply curve (AS), and long-run aggregate supply curve
(LRAS) for the economy in May 2020. According to the graph, this economy is in
.To bring the economy back to the natural level
monetary or fiscal policy such as
of output, the Federal Open Market Committee (FOMC) could use
Shift the appropriate curve on the following graph to illustrate the effects of the policy you chose above.
PRICE LEVEL
150
130
110
90
LRAS
AS
AD
AS
Transcribed Image Text:1. Use of discretionary policy to stabilize the economy 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 curve (AD), short-run aggregate supply curve (AS), and long-run aggregate supply curve (LRAS) for the economy in May 2020. According to the graph, this economy is in .To bring the economy back to the natural level monetary or fiscal policy such as of output, the Federal Open Market Committee (FOMC) could use Shift the appropriate curve on the following graph to illustrate the effects of the policy you chose above. PRICE LEVEL 150 130 110 90 LRAS AS AD AS
PRICE LEVEL
150
130
110
90
70
50
20
22
24
LRAS
26
OUTPUT (Trillions of dollars)
AS
AD
28
30
0 2 0 2
Suppose that in May 2020, policymakers undertake the type of policy that is necessary to bring the economy back to the natural level of output, given
the scenario just described. In September 2020, consumer confidence increases, leading to an increase in consumer spending. 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.
Transcribed Image Text:PRICE LEVEL 150 130 110 90 70 50 20 22 24 LRAS 26 OUTPUT (Trillions of dollars) AS AD 28 30 0 2 0 2 Suppose that in May 2020, policymakers undertake the type of policy that is necessary to bring the economy back to the natural level of output, given the scenario just described. In September 2020, consumer confidence increases, leading to an increase in consumer spending. 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.
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 3 steps with 1 images

Blurred answer
Knowledge Booster
Fiscal Policy
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:
9780190931919
Author:
NEWNAN
Publisher:
Oxford University Press
Principles of Economics (12th Edition)
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education