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 May 2025. According to the graph, this economy is in (a recession/an expansion) . To bring the economy back to the natural level of output, the government could use (an expansionary/a contractionary) monetary or fiscal policy such as (decreasing taxes/increasing taxes). Shift the appropriate curve on the following graph to illustrate the effects of the policy you chose. Suppose that in May 2025, 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 July 2025, imports decrease, because the United States has implemented trade restrictions on German goods. Because of the (political influence/inflation/lags) associated with implementing monetary and fiscal policy, the impact of the policymakers' stabilization policy will likely (fall short of the natural level of output/push the economy beyond the natural level of output/leave the economy unchanged/increase the long run capacity to produce goods and services) once the effects of the policy are fully realized.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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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 May 2025. According to the graph, this economy is in (a recession/an expansion) . To bring the economy back to the natural level of output, the government could use (an expansionary/a contractionary) monetary or fiscal policy such as (decreasing taxes/increasing taxes).

Shift the appropriate curve on the following graph to illustrate the effects of the policy you chose.

Suppose that in May 2025, 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 July 2025, imports decrease, because the United States has implemented trade restrictions on German goods. Because of the (political influence/inflation/lags) associated with implementing monetary and fiscal policy, the impact of the policymakers' stabilization policy will likely (fall short of the natural level of output/push the economy beyond the natural level of output/leave the economy unchanged/increase the long run capacity to produce goods and services) once the effects of the policy are fully realized.

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