Chapter 16 - approximately 7 questions Describe the best case scenario for monet

Question

Chapter 16 - approximately 7 questions Describe the best case scenario for monetary policy Explain why monetary policy is difficult in real life Describe the dangers of fighting inflation Explain why negative real shocks create a dilemma for policymakers / Understand the rules vs. discretion debate Know these terms: disinflation, deflation Chapter 17 approximately 10 questions Understand the sources of government tax revenue Understand the components of government spending / Demonstrate how individual income taxes are calculated / Describe the distribution of the tax burden in the US / Describe the national debt held by the public Explain the problems with the national debt held by the public Know these terms: marginal tax rate, average tax rate, progressive tax, flat tax, regressive tax, national debt held by the public, deficit Chapter 18 - approximately 6 questions Describe the best case scenario for fiscal policy / Explain the limits to fiscal policy / Describe the conditions under which fiscal policy is a good idea Know these terms: fiscal policy, multiplier effect, crowding out, Ricardian equivalence, automatic stabilizers

Explanation / Answer

Answer : The best case scanerio for monetary policy is that when there is recession in an economy and economy is capable of producing particular goods and services lower than its capability than the best alternative is that to increase the money supply in the market.

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Answer : It is very diffcult to implement monetary policy because when we apply contraction in money supply, it means slow economic growth rate in an economy as well as prevent inflation. It lead to increase unemployment. But it is very diffcult to implement in the long run scanerio to lower interest rate in an economy as well as expansionary monetary policy is very diffcult to implement on it.

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Answer : Dangerous of fighting inflation :

Inflation means a decrease in the price level. There are various dangerous effect of inflation in an econony such as :

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Answer : As we know with negative supply shocks both inflation and unemployment rate increases. If we want to reduce unemployment rate, expansionary monetary policy should be adopted which would increase inflation. On the other side if we want to reduce inflation rate, than there is increase in unemployment rate. Thus, with negative shocks stabilisation policy should be adopted so there should be tradeoff between stability inflation as well as economic activity.

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Answer : A debate about the fed that they should follow strict rules or should be allowed full discretion in determining the amount by which to increase or decrease the quantity of money.

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