1. Suppose the economy has fallen into a recession (output level ?0), and the federal government wants to return the economy to its original level of output (?). Respond to each of the following questions using appropriate diagrams and explanations. (a) If policy makers can only use fiscal tools, what should they do? (b) If policy makers can only use monetary tools, what should they do? (c) What should they do if they want to return output to its original level but keep investment from changing?

1. Suppose the economy has fallen into a recession (output level ?0), and the federal government wants to return the economy to its original level of output (?). Respond to each of the following questions using appropriate diagrams and explanations. (a) If policy makers can only use fiscal tools, what should they do? (b) If policy makers can only use monetary tools, what should they do? (c) What should they do if they want to return output to its original level but keep investment from changing?

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter18: Six Debates Over Macroeconomic Policy

Section: Chapter Questions

Problem 2PA

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