Macroeconomics (Fourth Edition)
4th Edition
ISBN: 9780393603767
Author: Charles I. Jones
Publisher: W. W. Norton & Company
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Chapter 12, Problem 3E
(a)
To determine
The impact of the temporary consumption boom.
(b)
To determine
Policy action by Fed.
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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.
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Suppose the government chooses to intervene in order to return the economy to the natural level of output by using (a contractionary/an expantionary) 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.
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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 February 2026.
Suppose the government chooses to intervene in order to return the economy to the natural level of output by using (an expansionary/a contractionary) 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.
Suppose that in February 2026 the government successfully carries out the type of policy necessary to restore the natural level of output described in the previous question. In July 2026,…
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Macroeconomics (Fourth Edition)
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