Should 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 AS 교 110 90 AD 70 LRAS 50 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 preceding scenario. In April 2023, U.S. imports increase because the United States has eliminated trade restrictions on Japanese goods. Because of the v associated with implementing monetary and fiscal policy, the impact of the government's new policy will v once the effects of the policy are fully realized. likely PRICE LEVEL
Should 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 AS 교 110 90 AD 70 LRAS 50 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 preceding scenario. In April 2023, U.S. imports increase because the United States has eliminated trade restrictions on Japanese goods. Because of the v associated with implementing monetary and fiscal policy, the impact of the government's new policy will v once the effects of the policy are fully realized. likely PRICE LEVEL
Chapter20: Aggregate Demand And Supply
Section: Chapter Questions
Problem 3SQP
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Transcribed Image Text:Should 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 preceding scenario. In April 2023, U.S. imports increase because the United States has eliminated trade restrictions on Japanese goods. Because
of the
associated with implementing monetary and fiscal policy, the impact of the government's new policy will
likely
v once the effects of the policy are fully realized.
PRICE LEVEL
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