Should policymakers use monetary policy, fiscal policy, or both in an effort to

Question

Should policymakers use monetary policy, fiscal policy, or both 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 lessen 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 economy in April 2020, According to the graph, this economy is in an expansion . To bring the economy back to the natural level of output, the Federal Open Market Committee (FOMC) could use a contractionary monetary or fiscal policy such as Shift the appropriate curve on the following graph to illustrate the effects of the policy you chose above 150 LRAS AS AD 130 110 AS 90 70 50 20 24 26 28 30 OUTPUT (Trillions of dollars) Suppose that in April 2020, policymakers undertake the type of policy that is necessary to bring the economy back to the natural level of output, given the scenario just described. In June 2020, exports decrease because Japan implements trade restrictions on goods. Because of the associated with implementing monetary and fiscal policy, the impact of the policymakers' stabilization policy will likely once the effects of the policy are fully realized

Explanation / Answer

Question 1). Answer :- Monetary or fiscal policy such as selling bonds.

Question 2). Answer :- Lags.

Question 3). Answer :- Push an economy below natural output level.

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