The economy is at full employment, but the government is disappointed with the growth rate of real GDP. It wants to increase real GDP growth by stimulating investment. At the same time, it wants to avoid an increase in the price level. a.Suggest a combination of fiscal and monetary policies that will achieve the government’s objective. b.Which policy would you recommend that the government adopt? c. Explain the mechanisms at work under your recommended policy. d.What is the effect of your recommended policy on the composition of aggregate demand? eWhat are the short-run and long-run effects of your recommended policy on real GDP and the price level?
The economy is at full employment, but the government is disappointed with the growth rate of real GDP. It wants to increase real GDP growth by stimulating investment. At the same time, it wants to avoid an increase in the price level. a.Suggest a combination of fiscal and monetary policies that will achieve the government’s objective. b.Which policy would you recommend that the government adopt? c. Explain the mechanisms at work under your recommended policy. d.What is the effect of your recommended policy on the composition of aggregate demand? eWhat are the short-run and long-run effects of your recommended policy on real GDP and the price level?
Chapter14: Macroeconomic Policy: Tradeoffs, Expectations, Credibility, And Sources Of Business Cycles
Section: Chapter Questions
Problem 17E
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The economy is at full employment, but the government is disappointed with the growth rate of real GDP. It wants to increase real GDP growth by stimulating investment. At the same time, it wants to avoid an increase in the price level. a.Suggest a combination of fiscal and monetary policies that will achieve the government’s objective. b.Which policy would you recommend that the government adopt? c. Explain the mechanisms at work under your recommended policy. d.What is the effect of your recommended policy on the composition of aggregate demand? eWhat are the short-run and long-run effects of your recommended policy on real GDP and the price level?
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