4. Monetary policy and fiscal policy often change at the same time. a. Suppose that the government wants to raise investment but keep output constant. In the IS-LM model, what mix of monetary and fiscal policy will achieve this goal? b. The government cuts taxes and ran a budget deficit while the central bank pursued a tight monetary. What effect should this policy mix have?

4. Monetary policy and fiscal policy often change at the same time. a. Suppose that the government wants to raise investment but keep output constant. In the IS-LM model, what mix of monetary and fiscal policy will achieve this goal? b. The government cuts taxes and ran a budget deficit while the central bank pursued a tight monetary. What effect should this policy mix have?

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter24: The Aggregate Demand/aggregate Supply Model

Section: Chapter Questions

Problem 52CTQ: If foreign wealth-holders decide that the United States is the safest place to invest their savings,...

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In the closed economy IS-LM model, how would the responsiveness of money demand to a change in output relate to the degree of crowding out after an increase in government spending? Select one: a. The less responsiveness money demand is to a change in output, the greater the degree of crowding out after an increase in government spending b. If money demand is high then crowding out is high. c. The more responsiveness money demand is to a change in output, the greater the degree of crowding out after an increase in government spending d. The responsiveness of money demand to a change in output has no bearing on the degree of crowding out after an increase in government spending
According to the IS-LM model, a. what happens to the interest rate, income, and investment when government spending decreases? b. how the Fed should adjust the money supply to keep income at its initial level. What happens to the interest rate as a result? c. If the Fed's goal is instead to hold the interest rate constant, explain in words how the Fed should adjust the money supply when government spending decreases. What happens to income as a result? d. What is the Fed's dilemma?
ONLY Question 3 Use the IS-LM model to answer this question. Suppose that the government wants to lower the budget deficit but keep output constant. Discuss what mix of monetary and fiscal policy will achieve this goal. Provide your line of reasoning and justify the answer. Attach an appropriate graph to support your answer. 3. Assume now that the government cuts taxes and runs a budget deficit while the central bank pursues a tight monetary policy. Investigate what effect should this policy mix have? Analyze what (and why) will happen to investment?
What is the ideal balance between monetary and fiscal policy for a nation like Japan, where prices are rising yet unemployment is under control? a. Decrease taxes, increase government spending and increase money supply b. Decrease taxes, decrease government spending and decrease money supplyc. None of these choice is correctd. Increase taxes, decrease government spending and decrease money supply
What is a key distinction between monetary policy and fiscal policy in economic management?A. Monetary policy involves government spending and taxation, while fiscal policy focuses on interestrates and money supply.B. Monetary policy is set by the central bank, while fiscal policy is determined by the government'sbudget decisions.C. Monetary policy primarily influences employment and economic growth, while fiscal policy mainlyaffects inflation.D. Monetary policy is a short-term strategy, while fiscal policy is a long-term approach to economicmanagement.
1. What are lags and why are they important when designing fiscal and monetary policies? (Make sure to contrast the differences in lags between monetary and fiscal policies). 2. Is the long-term scorecard of monetary and fiscal policies in the US more of a learning curve with significant successes or an example of poor government efforts at economic stabilization?
In the IS-LM model, if there is expansionary fiscal policy and expansionary monetary policy at the same time, then output ____ and the interest rate ____..
Explain and illustrate the following: a) Construct one IS-LM model and illustrate using arrows the effects of the following on Y and I when: Government increases government spending, other factors constant. Show the crowding out effect.b) Construct one IS-LM model and illustrate using arrows the effects of the following on Y and I when: Central Bank conducts an open market purchase of government bonds. Describe the transmission mechanism of monetary policy.c. Use the loanable funds market to illustrate graphically how an increase in net capital outflow will affect domestic interest rates and investment. Briefly explain your illustration.
Which of the following would be classed as an expansionary monetary policy? Ο Α. A decrease in the quantity of money. ОВ. A decrease in interest rates. C. An increase in government taxation. O D. An increase in government expenditure. O E. An increase in VAT.
2. Why are Keynesians more likely to advocate expansionary monetary policy to eliminate a recessionary gap and contractionary monetary policy to eliminate an inflationary gap?
If Brexit measures and Covid-19 restrictions result in a recession then how can the UK government and Bank of England fix this with both fiscal and monetary policy?
In the AS-AD model, a deficit reduction O decreases output in the short-run and the medium-run has no effect on the medium-run economy due to the neutrality of money. O crowds-in investment in the short-run and medium-run due to a decrease in interest rates. O has no effect on interest rates in the short-run.