ENGR.ECONOMIC ANALYSIS
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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 April 2023.
Suppose the government decides to intervene to bring the economy back to the natural level of output by using (FILL IN THE BLANK) 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.
Transcribed Image Text: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
110
AD
70
LRAS
50
20
22
24
26
28
30
OUTPUT (Trillions of dollars)
Suppose that in April 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 June 2023, U.S. imports decrease because the United States has implemented 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
once the effects of the policy are fully realized.
PRICE LEVEL
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- Worksheet 5: Aggregate Supply and Aggregate Demand Complete the questions below. Be sure to show your work. Upload this worksheet to Moodle. Consider the following Aggregate Supply and Aggregate Demand curves. 2. 3. D P 10 8 6 4 2 20 AS/AD 40 LRAS 60 80 140 SRAS AD Name: 100 120 GDP 4. Suppose the government increased spending (G). What would happen to Aggregate Demand? Draw the resulting curve, and mark a new equilibrium on the graph.arrow_forward7. 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, as well as the pros and cons of using these tools to combat economic fluctuations. The following graph plots hypothetical aggregate demand (AD), short-run aggregate supply (AS), and long-run aggregate supply (LRAS) curves for the U.S. economy in March 2026. Suppose the government chooses to intervene in order to return the economy to the natural level of output by using 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. 150 130 110 PRICE LEVEL 8 70 M 20 23 LRAS 34 24 OUTPUT (Tons of dears) AS AD 26 AD policy. ASarrow_forward#6arrow_forward
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- 6. 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, as well as the pros and cons of using these tools to combat economic fluctuations. The following graph plots hypothetical aggregate demand (AD), short-run aggregate supply (AS), and long-run aggregate supply (LRAS) curves for the U.S. economy in January 2026. Suppose the government chooses to intervene in order to return the economy 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.arrow_forwardPrice level (GDP price index, 2012 140 130 120 110 105 100 90 90 19 Potential GDP ADO 21 20 AS 22 Real GDP (trillions of 2012 dollars) The figure above shows a nation's aggregate demand curve, aggregate supply curve, and potential GDP. In the figure above, the can change expenditure by gap is one trillion dollars. To close the gap, the government one trillion dollars. recessionary; exactly inflationary; more than recessionary; less than recessionary; more thanarrow_forwardTOPIC: Crowding Out.arrow_forward
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