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Part (b) Discuss, with the aid of an aggregate output market diagram, what kind of monetary policy can be adopted to restore the economy to the full employment equilibrium.

Part (b) Discuss, with the aid of an aggregate output market diagram, what kind of monetary policy can be adopted to restore the economy to the full employment equilibrium.

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Answer part b only

Due to COVID-19, an economy that is initially at full employment faces a substantial decrease in consumption and investment. With this in mind, answer the following questions. Part (a) Discuss, with the aid of aggregate output market and money market diagrams, the short-term effect on output, unemployment, the general price level and interest rate. Part (b) Discuss, with the aid of an aggregate output market diagram, what kind of monetary policy can be adopted to restore the economy to the full employment equilibrium. Part (c) Suppose the problems discussed in part (a) rely on the self-adjustment mechanism instead of the discretionary policy proposed in part (b). Examine the possible impacts of minimum wage on the self-adjustment mechanism. 6 (Ctrl)
Transcribed Image Text:Due to COVID-19, an economy that is initially at full employment faces a substantial decrease in consumption and investment. With this in mind, answer the following questions. Part (a) Discuss, with the aid of aggregate output market and money market diagrams, the short-term effect on output, unemployment, the general price level and interest rate. Part (b) Discuss, with the aid of an aggregate output market diagram, what kind of monetary policy can be adopted to restore the economy to the full employment equilibrium. Part (c) Suppose the problems discussed in part (a) rely on the self-adjustment mechanism instead of the discretionary policy proposed in part (b). Examine the possible impacts of minimum wage on the self-adjustment mechanism. 6 (Ctrl)
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