9. 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, as well as the pros and cons of using these tools to combat economic fluctuations. The following graph plots hypothetical aggregate demand (AD), short-run aggregate supply (AS), and long-run aggregate supply (LRAS) curves for the U.S. economy in March 2026. Suppose the government chooses to intervene in order to return the economy 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. 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. 150 130 110 70 50 22 24 LRAS 26 OUTPUT (Trillions of dollars) AD ŏ 2 † AS Suppose that in March 2026 the government successfully carries out the type of policy necessary to restore the natural level of output described in the previous question. In June 2026, U.S. imports increase because the United States has eliminated trade restrictions on European goods. Due to 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.
9. 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, as well as the pros and cons of using these tools to combat economic fluctuations. The following graph plots hypothetical aggregate demand (AD), short-run aggregate supply (AS), and long-run aggregate supply (LRAS) curves for the U.S. economy in March 2026. Suppose the government chooses to intervene in order to return the economy 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. 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. 150 130 110 70 50 22 24 LRAS 26 OUTPUT (Trillions of dollars) AD ŏ 2 † AS Suppose that in March 2026 the government successfully carries out the type of policy necessary to restore the natural level of output described in the previous question. In June 2026, U.S. imports increase because the United States has eliminated trade restrictions on European goods. Due to 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.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:9. 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, as well as the pros and cons of using these tools to combat economic fluctuations.
The following graph plots hypothetical aggregate demand (AD), short-run aggregate supply (AS), and long-run aggregate supply (LRAS) curves for
the U.S. economy in March 2026.
Suppose the government chooses to intervene in order to return the economy 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.
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
130
110
70
50
22
24
LRAS
26
OUTPUT (Trillions of dollars)
AD
ŏ 2 †
AS
Suppose that in March 2026 the government successfully carries out the type of policy necessary to restore the natural level of output described in the
previous question. In June 2026, U.S. imports increase because the United States has eliminated trade restrictions on European goods. Due to
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.
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