Lags in the effect of monetary and fiscal policies.

Question

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Answer 1

Question

Chapter 36, Problem 1QR

To determine

Lags in the effect of monetary and fiscal policies.

Expert Solution & Answer

Explanation of Solution

Monetary policy affects aggregate demand primarily by changing interest rates. However, mostly households and firms set their spending plans in advance and as a result, there is time lag for changes in interest rate to alter the aggregate demand for goods and services. Also, the fiscal policy works with a lag since they are slowed by long political processes that govern changes in spending and taxes. Due to these long lags, it is more difficult to engage in an active stabilization policy, as the economy will not respond immediately to policy changes. Thus, long lags suggest a policy that is passive rather than active because the economy works with a lag; since the ability to forecast future economic conditions is poor, it may result in the attempts to stabilize the economy in the opposite manner (may result in destabilization).

Economics Concept Introduction

Concept introduction:

Monetary policy: Monetary policy refers to the credit control system adopted by the central bank of a country with an aim to achieve its macroeconomic policy objectives.

Fiscal Policy: Fiscal policy deals with the taxation and expenditure decisions of the government that influence a nation’s economy.

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Answer 2

Question

Chapter 36, Problem 1QR

To determine

Lags in the effect of monetary and fiscal policies.

Expert Solution & Answer

Explanation of Solution

Monetary policy affects aggregate demand primarily by changing interest rates. However, mostly households and firms set their spending plans in advance and as a result, there is time lag for changes in interest rate to alter the aggregate demand for goods and services. Also, the fiscal policy works with a lag since they are slowed by long political processes that govern changes in spending and taxes. Due to these long lags, it is more difficult to engage in an active stabilization policy, as the economy will not respond immediately to policy changes. Thus, long lags suggest a policy that is passive rather than active because the economy works with a lag; since the ability to forecast future economic conditions is poor, it may result in the attempts to stabilize the economy in the opposite manner (may result in destabilization).

Economics Concept Introduction

Concept introduction:

Monetary policy: Monetary policy refers to the credit control system adopted by the central bank of a country with an aim to achieve its macroeconomic policy objectives.

Fiscal Policy: Fiscal policy deals with the taxation and expenditure decisions of the government that influence a nation’s economy.

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Answer 3

Question

Chapter 36, Problem 1QR

To determine

Lags in the effect of monetary and fiscal policies.

Expert Solution & Answer

Explanation of Solution

Monetary policy affects aggregate demand primarily by changing interest rates. However, mostly households and firms set their spending plans in advance and as a result, there is time lag for changes in interest rate to alter the aggregate demand for goods and services. Also, the fiscal policy works with a lag since they are slowed by long political processes that govern changes in spending and taxes. Due to these long lags, it is more difficult to engage in an active stabilization policy, as the economy will not respond immediately to policy changes. Thus, long lags suggest a policy that is passive rather than active because the economy works with a lag; since the ability to forecast future economic conditions is poor, it may result in the attempts to stabilize the economy in the opposite manner (may result in destabilization).

Economics Concept Introduction

Concept introduction:

Monetary policy: Monetary policy refers to the credit control system adopted by the central bank of a country with an aim to achieve its macroeconomic policy objectives.

Fiscal Policy: Fiscal policy deals with the taxation and expenditure decisions of the government that influence a nation’s economy.

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Answer 4

Question

Chapter 36, Problem 1QR

To determine

Lags in the effect of monetary and fiscal policies.

Expert Solution & Answer

Explanation of Solution

Monetary policy affects aggregate demand primarily by changing interest rates. However, mostly households and firms set their spending plans in advance and as a result, there is time lag for changes in interest rate to alter the aggregate demand for goods and services. Also, the fiscal policy works with a lag since they are slowed by long political processes that govern changes in spending and taxes. Due to these long lags, it is more difficult to engage in an active stabilization policy, as the economy will not respond immediately to policy changes. Thus, long lags suggest a policy that is passive rather than active because the economy works with a lag; since the ability to forecast future economic conditions is poor, it may result in the attempts to stabilize the economy in the opposite manner (may result in destabilization).

Economics Concept Introduction

Concept introduction:

Monetary policy: Monetary policy refers to the credit control system adopted by the central bank of a country with an aim to achieve its macroeconomic policy objectives.

Fiscal Policy: Fiscal policy deals with the taxation and expenditure decisions of the government that influence a nation’s economy.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 36, Problem 1QR

To determine

Lags in the effect of monetary and fiscal policies.

Expert Solution & Answer

Explanation of Solution

Monetary policy affects aggregate demand primarily by changing interest rates. However, mostly households and firms set their spending plans in advance and as a result, there is time lag for changes in interest rate to alter the aggregate demand for goods and services. Also, the fiscal policy works with a lag since they are slowed by long political processes that govern changes in spending and taxes. Due to these long lags, it is more difficult to engage in an active stabilization policy, as the economy will not respond immediately to policy changes. Thus, long lags suggest a policy that is passive rather than active because the economy works with a lag; since the ability to forecast future economic conditions is poor, it may result in the attempts to stabilize the economy in the opposite manner (may result in destabilization).

Economics Concept Introduction

Concept introduction:

Monetary policy: Monetary policy refers to the credit control system adopted by the central bank of a country with an aim to achieve its macroeconomic policy objectives.

Fiscal Policy: Fiscal policy deals with the taxation and expenditure decisions of the government that influence a nation’s economy.

Answer 6

Chapter 36, Problem 1QR

To determine

Lags in the effect of monetary and fiscal policies.

Expert Solution & Answer

Explanation of Solution

Monetary policy affects aggregate demand primarily by changing interest rates. However, mostly households and firms set their spending plans in advance and as a result, there is time lag for changes in interest rate to alter the aggregate demand for goods and services. Also, the fiscal policy works with a lag since they are slowed by long political processes that govern changes in spending and taxes. Due to these long lags, it is more difficult to engage in an active stabilization policy, as the economy will not respond immediately to policy changes. Thus, long lags suggest a policy that is passive rather than active because the economy works with a lag; since the ability to forecast future economic conditions is poor, it may result in the attempts to stabilize the economy in the opposite manner (may result in destabilization).

Economics Concept Introduction

Concept introduction:

Monetary policy: Monetary policy refers to the credit control system adopted by the central bank of a country with an aim to achieve its macroeconomic policy objectives.

Fiscal Policy: Fiscal policy deals with the taxation and expenditure decisions of the government that influence a nation’s economy.

Answer 7

Chapter 36, Problem 1QR

To determine

Lags in the effect of monetary and fiscal policies.

Answer 8

Expert Solution & Answer

Explanation of Solution

Monetary policy affects aggregate demand primarily by changing interest rates. However, mostly households and firms set their spending plans in advance and as a result, there is time lag for changes in interest rate to alter the aggregate demand for goods and services. Also, the fiscal policy works with a lag since they are slowed by long political processes that govern changes in spending and taxes. Due to these long lags, it is more difficult to engage in an active stabilization policy, as the economy will not respond immediately to policy changes. Thus, long lags suggest a policy that is passive rather than active because the economy works with a lag; since the ability to forecast future economic conditions is poor, it may result in the attempts to stabilize the economy in the opposite manner (may result in destabilization).

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

Economics Concept Introduction

Concept introduction:

Monetary policy: Monetary policy refers to the credit control system adopted by the central bank of a country with an aim to achieve its macroeconomic policy objectives.

Fiscal Policy: Fiscal policy deals with the taxation and expenditure decisions of the government that influence a nation’s economy.

Answer 12

Ch. 36.1 - Prob. 1QQ Ch. 36.2 - Prob. 2QQ Ch. 36.3 - Prob. 3QQ Ch. 36.4 - Prob. 4QQ Ch. 36.5 - Prob. 5QQ Ch. 36.6 - Prob. 6QQ Ch. 36 - Prob. 1QR Ch. 36 - Prob. 2QR Ch. 36 - Prob. 3QR Ch. 36 - Prob. 4QR

Lags in the effect of monetary and fiscal policies.

Solution Summary: The author explains that monetary policy affects aggregate demand primarily by changing interest rates, while fiscal policy is slowed by long political processes that govern changes in spending and taxes. Long lags suggest a policy that is passive

Lags in the effect of monetary and fiscal policies.

Explanation of Solution

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