**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, 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.***Explanation of the Graph:**The graph below depicts three curves:1. **AD (Aggregate Demand Curve):** The downward-sloping line with an arrow indicating its path from left to right.2. **AS (Short-Run Aggregate Supply Curve):** The upward-sloping line denoted in orange.3. **LRAS (Long-Run Aggregate Supply Curve):** The vertical line shown in purple.**Axes:**- The vertical axis represents the price level, with values ranging from 90 to 150.- The horizontal axis represents the output level.The intersection points among these curves demonstrate various equilibrium states of the economy. Moving the AD curve or the AS curve based on the government policy will show the intended effect on restoring the natural level of output. ### Economic Policy and Trade Restrictions#### Graph Analysis:The graph presented illustrates the relationship between price levels and output in an economy. It features three crucial curves: Aggregate Demand (AD), Aggregate Supply (AS), and Long-Run Aggregate Supply (LRAS).1. **Aggregate Demand (AD) Curve**: The AD curve is depicted as a downward-sloping line, indicating that as the price level decreases, the total quantity of goods and services demanded increases. 2. **Aggregate Supply (AS) Curve**: The AS curve slopes upward, representing that as the price level increases, the total quantity of goods and services supplied also increases. 3. **Long-Run Aggregate Supply (LRAS) Curve**: The LRAS is illustrated as a vertical line at the output level of approximately 26 trillion dollars. This vertical stance indicates that in the long run, the total output is determined by factors other than the price level, such as resources, technology, and policies.The equilibrium, where AD and AS intersect, is a crucial point of analysis in determining the price level and output. Here it is marked near the natural level of output that corresponds to the LRAS curve. #### Scenario Explanation:"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."To complete the scenario:1. In the first blank, the term "lags" can be filled in, referring to delays that typically occur between when a policy is implemented and when its full effects are seen in the economy: *Because of the lags associated with implementing monetary and fiscal policy...* 2. In the second blank, the phrase "become apparent" or "materialize" could be apt, acknowledging that the empirically measured effects will become noticeable over time: *... the impact of the government’s new policy will likely become apparent once the effects of the policy are fully realized.*Such a policy context helps underline the dynamic and lagged nature of economic adjustments in response to governmental interventions. As such, these concepts are vital for understanding the broader economic impacts resulting from shifts in import regulations and other fiscal policies

The economy is producing natural rate of output at long run aggregate supply curve.

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, 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 PRICE LEVEL 130 110 90 - AS

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, 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 PRICE LEVEL 130 110 90 - AS

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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1. Use of discretionary policy to stabilize the economy In an effort to stabilize the economy, is it best for policymarkers to use monetary policy, fiscal policy, or a combination of both? The following questions address the ways monetary and fiscal policies impact the economy and the pros and cons associated with using these tools to ease 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 January 2025. According to the graph, this economy is in .To bring the economy back to the natural level of output, the government could use monetary or fiscal policy such as Shift the appropriate curve on the following graph to illustrate the effects of the policy you chose. 150 LRAS AS 110 X AD 70 24 26 OUTPUT (Trillions of dollars) PRICE LEVEL 130 85 50 20 22 28 30 AD ロー AS ? Suppose that in January 2025, policymakers undertake the type of policy that is…
Please answer everything in the photos including the graph.
Use of discretionary policy to stabilize the economy
Worksheet 5: Aggregate Supply and Aggregate Demand Complete the questions below. Be sure to show your work. Upload this worksheet to Moodle. Consider the following Aggregate Supply and Aggregate Demand curves. 2. 3. D P 10 8 6 4 2 20 AS/AD 40 LRAS 60 80 140 SRAS AD Name: 100 120 GDP 4. Suppose the government increased spending (G). What would happen to Aggregate Demand? Draw the resulting curve, and mark a new equilibrium on the graph.
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, 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 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 PRICE LEVEL 8 70 M 20 23 LRAS 34 24 OUTPUT (Tons of dears) AS AD 26 AD policy. AS
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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, 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 January 2026. Suppose the government chooses to intervene in order to return the economy to the natural level of output by using 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. PRICE LEVEL 150 130 110 90 AS AD D AS policy. ?
3. Suppose an economy is in long run equilibrium. 3.1 use the model of aggregate demand and aggregate supply to illustrate the initial equilibrium (call it point A). Be sure to include both short run and long run aggregate supply. 3.2 The central bank raises the money supply by 5 percent. Use your diagram to show that what happen to output and the price level as the economy moves from the initial to the new short run equilibrium (Call it point B). 3.3 Now show the new long-run equilibrium (call it point C). what cause the economy to move from point B to point C?
Start with a brief introduction that explains use of Government policy to control the economy. When is it appropriate to use monetary and fiscal policy to stimulate or stabilize the economy? Look at both. When is it inappropriate to use monetary and fiscal policy to stimulate or stabilize the economy? Look at both. What specific fiscal policy tools would you use to stimulate aggregate demand and how? What specific monetary policy tools would you use to stimulate aggregate demand and how? What is your conclusion, should policymakers use the monetary and or fiscal policy, or a combination of both, to stimulate aggregate demand? Explain your reasoning.
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This question checks whether you understand the procedure for deriving the economy's aggregate demand curve. Think back to how this curve was derived in class. Please identify which of the following steps comes first, second, third, and fourth. First ___________ Second __________ Third ___________ Fourth ___________ Choose : O. See what level of R is implied by the monetary rule. O. Draw the Spending Curve. O. Identify the point of Spending Balance (where Y = C+1+G+ X). O. Pick an inflation rate.
In the graph of Figure I, the annual growth rate of the GDP of the United States economy is presented since the first quarter of 2004, while, in the graphs of Figure II, three different scenarios of the relationship are represented between demand and aggregate supply that reflect different situations of economic growth.2. Explain in detail what is happening in Graph A of Figure II (economic growth, expansion, inflation or reccesion) according to the long and short term aggregate supply curve and aggregate demand and general price level and, examining the data in the graph of Figure I Table 1.1.1., and identify in what period of time this situation (identified in the Graph A) is ocurring. Figure I = Real data of the United States economyFigure 2 = Representation of the aggregate demand and supply modelDA = AGGREGATE DEMANDGDP = GROSS DOMESTIC PRODUCTNGP = GENERAL PRICE LEVELOAL = LONG TERM AGGREGATE OFFEROAC = SHORT-TERM AGGREGATE OFFER