Suppose an economy is in a deep recession with high unemployment and low output. b. If the central bank aims to restore the economy to its natural rate, how should it achieve this by using open-market operations? Illustrate the effect of this open-market operation in your diagram in part (a). (8 marks) c. Will the crowding-out effect occur when the central bank conducts open-market operations in part (b)? Explain. (3 marks)

Suppose an economy is in a deep recession with high unemployment and low output. b. If the central bank aims to restore the economy to its natural rate, how should it achieve this by using open-market operations? Illustrate the effect of this open-market operation in your diagram in part (a). (8 marks) c. Will the crowding-out effect occur when the central bank conducts open-market operations in part (b)? Explain. (3 marks)

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter16: The Influence Of Monetary And Fiscal Policy On Aggregate Demand

Section: Chapter Questions

Problem 8PA

See similar textbooks

Similar questions

1. Given the discussion of the effects of fiscal policy in this chapter, if the central bank does not change the policy rate, a foreign fiscal expansion is likely to __________. A. increase foreign output and not change the foreign exchange rate. B. increase foreign output and decrease the foreign exchange rate. C. decrease foreign output and not change the foreign exchange rate. D. decrease both foreign output and the foreign exchange rate. 2.) Given the discussion of the effects of monetary policy in this chapter, a foreign monetary expansion is likely to __________. A. decrease foreign output and increase the foreign interest rate. B. increase foreign output and decrease the foreign interest rate. C. decrease both foreign output and the foreign interest rate. D. increase both foreign output and the foreign interest rate. 3.) Given the discussion of the effects of fiscal policy in this chapter, how does a foreign fiscal…
S2201-ECON-2000 Economic McGraw Hill Connect Deep Inte X Grades for Sean Lee: S2201-EC X Question 8 - Fiscal Policy: Hom X C The Graph Below Depicts An E X + ezto.mheducation.com/ext/map/index.html?_con=con&external_browser=0&launchUrl=https%253A%252F%252Fnewconnect.mheduc... Update Fiscal Policy: Homework i Saved Help Save & Exit Submit Check my work The graph below depicts an economy where an increase in aggregate demand has caused inflation. Assume the government decides to conduct fiscal policy by decreasing government purchases to restore full-employment GDP. 10 Fiscal Policy points 180 LRAS AS еВook 160 140 Print 120 100 References 80 60 AD1 40 AD 20 100 200 300 400 500 600 700 800 900 1000 Real GDP (billions of dollars) Instructions: Enter your answer as a whole number. If you are entering a negative number include a minus sign. Mc Graw Hill Price Level
8. Refer to the diagrams. The multiplier associated with fiscal policy that increases aggregate demand from AD1 to AD2 is less in graph b than in a because: * AS AS AD, AD, AD, AD2 X YZ Real GDP 0. X YZ Real GDP (a) (b) Graph a represents a closed economy while b depicts an open economy. Inflation occurs in b and not in a The economy is in the vertical range of aggregate supply in a and not inb. Graph a represents an open economy while b depicts a closed economy. Price level Price level
Q.1.4 Which of the following statements about Fiscal Policy is INCORRECT? (2)(a) In order to combat inflation, the South African Reserve Bank must apply acontractionary fiscal policy;(b) A contractionary fiscal policy can result in higher levels of unemployment;(c) Expansionary fiscal policy will increase the budget deficit;(d) The application of fiscal policy will have no effect on aggregate supply in theAD‐AS model.
3) Suppose you observed that, by-and-large, in times of economic recessions, China mainly adopts fiscal policies, while the United States mainly utilizes monetary policies. Explain and illustrate why these policies are effective in the respective economies. Please illustrate with graphs
44)Which of the following statements is most accurate regarding fiscal policy and monetary policy? Select one: a. Monetary policy can be changed more quickly than fiscal policy. Fiscal policy can be changed at any of the FOMC meetings and the smaller number of individuals involved makes it easier to change fiscal policy. b. Fiscal policy can be changed more quickly than monetary policy. Fiscal policy has much shorter delays due to the smaller number of legislators involved. c. Monetary policy can be changed more quickly than fiscal policy. Monetary policy can be changed at any of the FOMC meetings and the smaller number of individuals involved makes it easier to change monetary policy. d. Fiscal policy can be changed more quickly than monetary policy. Monetary policy has much longer delays due to the larger number of legislators involved.
Determine how each of the following monetary or fiscal policy would shift the aggregate demand curve. Illustrate and explain the following effect. a. Assuming the economy is currently producing above the full employment output, the government decided to increase the personal income tax as a form of contractionary fiscal policy. Illustrate and explain the effect of the policy using AD-AS curve. b. With the recession due to COVID-19, the central bank has decided to lower down discount rates and reserve requirements of the commercial bank. Illustrate and explain the effect of the policy using AD-AS curve.
Economics 1) Distinguish between discretionary and nondiscretionary fiscal policy. 2) Differentiate between expansionary and contractionary fiscal policy. 3) Plot the following markets on a graph: AD/AS graph: using 19.1 trillion for RGDP and 1.9% for inflation as point A (equilibrium). How will our AD/AS graph look like when U.S. government buys more military vessels (Shift the appropriate AD/AS curve on the graph)? 4) Plot the following markets on a graph: AD/AS graph: using 19.1 trillion for RGDP and 1.9% for inflation as point A (equilibrium). How will our AD/AS graph look like when Congress implements an income tax cut (Shift the appropriate AD/AS curve on the graph)?
1. Explain and show graphically how monetary and fiscal policies can be used in the IS-LM framework. Within a closed economy IS-LM model, analyse the effects on income, the interest rate, consumption, and investment of the following: a) A fall in the government budget deficit. Explain how your answer is affected by whether the reduced deficit comes about through a fall in government purchases or a rise in tax revenue. b) A fall in the money supply. 2. Suppose the Government wishes to reduce the budget deficit by reducing public spending while holding taxes constant. Assuming that the monetary authorities hold the money supply constant, explain why the decrease in government spending affects output more in the IS model than in the IS-LM model. Please note: To help explain your answers and analysis, you should always attempt to use diagrams, mathematical demonstration where applicable and convey the economic intuitions behind the results. Do not forget to label your graphs.
7. Which of the following is true about the annual budget prepared by the Government? * It is a part of the fiscal policy of the government O It is a part of the money-saving policy of the government O It is a part of the commercial policy of the government It is a part of the monetary policy of the government TOSHIBA
7) Suggest a policy mix to achieve the following objectives: a. Increase Y while keeping i constant. b. Decrease the fiscal deficit while keeping constant. What happens to i? To investment?
3)Show and explain how an expansionary fiscal policy can cause crowding-out effect by using aggregateexpenditure and aggregate output curves.2)What action could the TCMB take to reduce the crowding-out effect of an expansionary fiscal policy?1)By using graphs, show and explain the effects of an expansionary fiscal policy on the goods market by taking thelink between two markets into account