Apply the instructions below to the following three questions. An economic event
ID: 1223901 • Letter: A
Question
Apply the instructions below to the following three questions. An economic event occurs and AD curve shifts to the right as a result. This moves the economy from the initial equilibrium point A to the new short-run equilibrium point B. The economy is experiencing an economic boom. a. Give an example of a policy that will stabilize the output, either fiscal or monetary policy. Analyze the impact of the government intervention (follow the instruction above) on the price level, output, and unemployment rate compared to the initial equilibrium A. b. Find the arguments for and against the policy. Refer to Figure 2: An economic event occurs and SRAS curve shifts to the left as a result. This moves the economy from the initial equilibrium point A to the new short-run equilibrium point B. The economy is experiencing stagflation. a. Give an example of an inflation-reducing monetary policy. Use the AD-AS model to analyze its effect on the price level, output, and unemployment rate compared to the initial equilibrium A.Explanation / Answer
Both Parts 1 and 2 have the same answer as both these figures show a situation of inflation.
Figure 1 shows that the aggregate demand has expanded implying that there would be a shortage of goods in the economy leading to increase in prices, i.e., inflation.
Figure 2 shows that the aggregate supply has decreased, again implying that there would be a shortage of goods in the economy leading to increase in prices, i.e, inflation.
Various measures to correct this situation are as follows: (You can use any one)
Fiscal Policy measures : It consists of the following measures:
MONETARY POLICY
Monetary policy is the policy of the central bank of a country for regulating and controlling money supply and credit in the economy.
It consists of the following two types of measures:
QUANTITATIVE MEASURES
QUALITATIVE MEASURES
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