Fiscal and Monetary Stimulus A. Create a graph of equilibrium in the IS-LM model. Show the effect of an expansionary monetary policy. Summarize your results. B. If the central bank’s goal is to maximize output, what interest rate will we expect in equilibrium? C. Starting from the equilibrium described in (B), suppose investors experience a decrease in “animal spirits.” What happens to output? Can the central bank offset this with expansionary monetary policy? D. What could fiscal authorities do to offset the shock to animal spirits described in (C)?

(20) Assume that the economy begins in long-run equilibrium and that the federal reserve decides to use open market operations to sell bonds. Which curve shifts as a result? Group of answer choices (A) The LRAS curve (B) The SRAS curve (C) The AD curve

The aggregate demand curve Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. a only shifts when prices change b is downward sloping because the Federal Reserve changing the money supply leads to a change in the interest rate. с represents equilibrium in both the money market and Y = AE/Aggregate Expenditures model. d none of the above are correct

Assume that the general level of prices increases. Which of the following best describes what happens to the money market, AE model and AD curve? Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. a We shift the AD curve to the left because the interest rate increases, the aggregate expenditures curve decreases and equilibrium Y decreases. We shift the AD curve to the right because the interest rate decreases, the aggregate expenditures curve increases and equilibrium Y increases. We move along the AD curve because the interest rate decreases, the aggregate expenditures curve increases and equilibrium Y increases. We move along the AD curve because the interest rate increases, the aggregate expenditures curve decreases and equilibrium Y decreases. σ

In the extended version of the classical model, based on the misperceptions theory. a. Graphically show the effect of an unanticipated increase in money supply using the AS-AD model. Make sure to label the short-run equilibrium point. b. Repeat part (a). This time, assume that the public was anticipating this increase in money supply. c. Is the short-run equilibrium in part (b) point the same as in part (a). Why or why not?

Explain the role of supply-side policies in the macro-economy. In the context of your analysis distinguish between New Classical and Keynesian approaches to supply side policies. Illustrate your answer with appropriate diagrams.

The US Government is facing major budget deficit deciding between implementing fiscal and monetary policy to boost output back to potential output. In the presence of expectations, using the IS-LM model graph the effects on the US economy from a contractionary fiscal policy? What would happen if this change is perceived as permanent by investors? Graph and explain. What would happen if the government was perceived as wasteful? Graph and explain.

If the government decides to increase spending on national defense, then in the IS-LM model the IS curve will shift right, the equilibrium interest rate will increase and the equilibrium output will go up.    True or False

How did the large decrease in aggregate demand during the first and second quarters of 2020 (the Coronavirus demand shock) affect real GDP and the price level? Explain how and why the spread of the Coronavirus made an impact on consumer and business investment spending as well as overall aggregate demand? Be specific.