7. Use of discretionary policy to stabilize the economy Should the government use monetary and fiscal policy 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 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 April 2023. Suppose the government decides to intervene to bring the economy back to the natural level of output by using v policy. 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 successfully restore the natural level of output. 150 AS AD 130 110 AS AD 70 LRAS 50 22 24 26 28 30 OUTPUT (Trillions of dollars) Suppose that in April the government undertakes the type of policy that is necessary to bring the economy back to the natural level of output in the preceding scenario. In June 2023, U.S. imports decrease because the United States has implemented trade restrictions on French goods. Because of v associated with implementing monetary and fiscal policy, the impact of the government's new policy will likely v once the effects of the policy are fully realized. the PRICE LEVEL

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

1st Blank options are an expansion or a contractionary

2nd Blank options are inflation, consumer preferences, and lags

3rd Blank options are push the economy beyond the natural level of output, leave the U.S. economy unchanged, fall short of the natural level of output, increase the long-run production capacity

7. Use of discretionary policy to stabilize the economy
Should the government use monetary and fiscal policy 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 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 April 2023.
Suppose the government decides to intervene to bring the economy back to the natural level of output by using
policy.
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 successfully
restore the natural level of output.
150
AS
AD
130
O
110
AS
90
AD
70
LRAS
50
20
22
24
26
28
30
OUTPUT (Trillions of dollars)
Suppose that in April the government undertakes the type of policy that is necessary to bring the economy back to the natural level of output in the
preceding scenario. In June 2023, U.S. imports decrease because the United States has implemented trade restrictions on French 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.
PRICE LEVEL

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