EBK MACROECONOMICS
4th Edition
ISBN: 8220103648165
Author: KRUGMAN
Publisher: MAC HIGHER
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Chapter 15, Problem 5P
To determine
Concept Introduction:
Expansionary Monetary Policy: This policy is used by the government to expand the money supply in the economy. Money supply is increased by reducing the interest rate, as lower interest rates will encourage people to borrow more.
Contractionary Monetary Policy: This policy is used by the government to contract the money supply from the economy. Money supply is reduced by increasing the interest rate, as higher interest rates will de-motivate people to borrow.
Inflationary gap: At the level of full employment, if the value of real
Recessionary gap: At the level of full employment, if the value of the potential GDP is greater than the value of the real GDP, it leads to an emergence of the recessionary gap.
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