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.

ENGR.ECONOMIC ANALYSIS
14th Edition
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Author:NEWNAN
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Chapter1: Making Economics Decisions
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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 necessary to bring the economy back to the natural level of output,
given the scenario just described. In March 2025, imports decrease, because the United States has implemented trade restrictions on Mexican goods.
Because of the
associated with implementing monetary and fiscal policy, the impact of the policymakers' stabilization policy
once the effects of the policy are fully realized.
will likely
Transcribed Image Text: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 necessary to bring the economy back to the natural level of output, given the scenario just described. In March 2025, imports decrease, because the United States has implemented trade restrictions on Mexican goods. Because of the associated with implementing monetary and fiscal policy, the impact of the policymakers' stabilization policy once the effects of the policy are fully realized. will likely
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