Principles of Economics
7th Edition
ISBN: 9781305156043
Author: N. Gregory Mankiw
Publisher: Cengage Learning US
expand_more
expand_more
format_list_bulleted
Question
Chapter 34, Problem 4QR
To determine
Pessimism and aggregate demand .
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
Suppose that survey measures of consumer confidence indicates a wave of pressimism is sweeping the country. If policy maker do nothing, what will happen to aggregate demand? What should the fed do of it wants to stabilize the aggregate demand? If fed does nothing then what congress should do to stabilize the aggregate demand?
Suppose that consumers become pessimistic about the future health of the economy. What will happen to aggregate demand and to output? What might the president and Congress have to do to keep output stable? What might the Federal Reserve do?
A stimulative monetary or fiscal action should increase aggregate demand. What factors may limit the actual increase in aggregate demand?
Knowledge Booster
Similar questions
- As you have learned in Unit 8 (this week), monetary and fiscal policy play important roles in economic stimulation and or stabilization. In this regard: a. When is it appropriate to use monetary and fiscal policy to stimulate or stabilize the economy? b. When is it inappropriate to use monetary and fiscal policy to stimulate or stabilize the economy? c. What specific fiscal policy tools would you use to stimulate aggregate demand and how? d. What specific monetary policy tools would you use to stimulate aggregate demand and how? e. What is your conclusion, should policymakers use the monetary and or fiscal policy to stimulate aggregate demand? Explain briefly.arrow_forwardStart with a brief introduction that explains use of Government policy to control the economy. When is it appropriate to use monetary and fiscal policy to stimulate or stabilize the economy? Look at both. When is it inappropriate to use monetary and fiscal policy to stimulate or stabilize the economy? Look at both. What specific fiscal policy tools would you use to stimulate aggregate demand and how? What specific monetary policy tools would you use to stimulate aggregate demand and how? What is your conclusion, should policymakers use the monetary and or fiscal policy, or a combination of both, to stimulate aggregate demand? Explain your reasoning.arrow_forwardMost economists agree that individual consumers and business cannot pull the economy out of a severe recession without help from either the government or the Federal Reserve. Which group(s) believe fiscal policy is ineffective: Keynesians or Monetarists? Briefly explain the answer. Which group(s) believe monetary policy is ineffective in the short run: Keynesians or Monetarists? Briefly explain the answer. Which group(s) believe monetary policy is ineffective in the long run: Keynesians or Monetarists? Briefly explain the answer.arrow_forward
- How do changes in aggregate demand and aggregate supply might cause inflation in the economy?arrow_forwardHow does increased government spending affect the aggregate demand curve?arrow_forwardWhile the economy is at potential output, the government increases spending. The following table describes the aggregate demand curves before and after an increase in government spending, where real GDP is expressed as the percent deviation from potential GDP and inflation is expressed as a percentage: Real GDP (Before) 2.0 1.0 0.0 -1.0 -2.0 Real GDP (After) 4.0 3.0 2.0 1.0 0.0 In the long run, what is the inflation rate after the increase in government spending? Inflation 3.0 4.0 5.0 7.0 9.0arrow_forward
- If the economy is in long run economic equilibrium, at potential GDP, and full employment has been reached as well, if there is an outward shift in aggregate demand, we can expect damaging inflation to start to occur and the government to seek contractionary fiscal and monetary options. True or Falsearrow_forwardhow a decrease in government spending on infrastructure affect the aggregate demand curve?arrow_forwardWhat is the difference between fiscal and monetary policy? What fiscal and monetary steps can the government and the central bank undertake during times of recession to help the economy? What are the pros and cons of fiscal and monetary policy?arrow_forward
- Does the monetary and fiscal policy have lags? Give your explanation!arrow_forwardIn 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…arrow_forwardShould the government use monetary and fiscal policy in an effort to stabilize the economy? The following questions address the issue of how monetary and fiscal policies affect the economy, and the pros and cons of using these tools to combat 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 U.S. economy in February 2023. Suppose the government decides to intervene to bring the economy back to the natural level of output by using policy. Depending on which curve is affected by the government policy, shift either the AS curve or the AD curve to reflect the change that would successfully restore the natural level of output. 150 AS AD 130 110 AS AD 70 LRAS 50 20 22 24 26 28 30 OUTPUT (Trillions of dollars) Suppose that in February the government undertakes the type of policy that is necessary to bring the economy back to the natural level of output in the…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Economics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning
Brief Principles of Macroeconomics (MindTap Cours...EconomicsISBN:9781337091985Author:N. Gregory MankiwPublisher:Cengage Learning
Economics Today and Tomorrow, Student EditionEconomicsISBN:9780078747663Author:McGraw-HillPublisher:Glencoe/McGraw-Hill School Pub Co
Economics (MindTap Course List)
Economics
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Cengage Learning
Brief Principles of Macroeconomics (MindTap Cours...
Economics
ISBN:9781337091985
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Economics Today and Tomorrow, Student Edition
Economics
ISBN:9780078747663
Author:McGraw-Hill
Publisher:Glencoe/McGraw-Hill School Pub Co