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?

13. Suppose that two countries differ on in the size of their MPC, where the MPC is high in country A and low in country B. Draw IS/LM and AD/AS curves for each country. In which country will monetary policy be most effective at changing income? Fiscal policy?

← 2:12 Principles of Macroe... Vo LTE 4G+ R vecmeccssary: what would have happened to aggregate demand and aggregate output: 6 Consider two economies - Avalon and Eternia. In Avalon, the central bank uses interest rates to conduct monetary policy. In Eternia, the central bank conducts monetary policy by changing the money supply. a Which economy would have a more effective monetary policy? Explain. b Which country would have higher inflation? Explain. 33% c Why can't Avalon and Eternia set both interest rates and money supply? 7 This chapter explains that expansionary monetary policy reduces the interest rate and thus stimulates demand for consumption and investment goods. Explain how such a policy also stimulates imports, exports and overall net exports. (You may need to refer to chapter 13 to answer this question.) 8 Suppose economists observe that an increase in government spending of $10 billion raises the total demand for goods and services by $30 billion. a Is crowding out…

The U.S. monetary policy is conducted to achieve two goals of price stability and fullemployment output. In the short run, monetary policy can influence economic activity through the monetary transmission mechanism. Which of the following is false?a. Monetary expansion tends to encourage consumption by lowering the interest  rate. b. Monetary expansion tends to encourage investment by lowering the interest  rate. c. Monetary expansion tends to lead to appreciation of the domestic currency,  which encourages the foreign imports.d. Monetary contraction leads to lower asset prices, which tends to discourage  investment.e. All of the above are correct