ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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7. Use of discretionary policy to stabilize the economy
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 May 2023.
A-Z
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
1:23 PM
4/29/2022
130
AD
O
expand button
Transcribed Image Text:7. Use of discretionary policy to stabilize the economy 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 May 2023. A-Z 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 1:23 PM 4/29/2022 130 AD O
PRICE LEVEL
150
130
110
90
70
50
AS
22
AD
26
LRAS
20
24
26
30
OUTPUT (Trillions of dollars)
Suppose that in May 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 September 2023, U.S. imports increase because the United States has eliminated trade restrictions on French goods. Because
of the
associated with implementing monetary and fiscal policy, the impact of the government's new policy will likely
1:24 PM
4/29/2022
28
AD
AS
expand button
Transcribed Image Text:PRICE LEVEL 150 130 110 90 70 50 AS 22 AD 26 LRAS 20 24 26 30 OUTPUT (Trillions of dollars) Suppose that in May 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 September 2023, U.S. imports increase because the United States has eliminated trade restrictions on French goods. Because of the associated with implementing monetary and fiscal policy, the impact of the government's new policy will likely 1:24 PM 4/29/2022 28 AD AS
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