Explain the expansionary fiscal-monetary policy

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The Macroeconomic Policy Response to the Pandemic

YEAR 

POTENTIAL GDP 

REAL GDP

 PRICE LEVEL

2020 

$1500 billion

$1500 billion

100

2021 

$1590 billion 

$1560 billion 

105

Refer to the table above to answer the questions below:

a) Explain whether a contractionary or an expansionary fiscal or monetary policy should be implemented in 2021.

b) Based on you answer to part a) above, identity one monetary and fiscal policy instrument.

c) If the economy is successful in keeping real GDP at its potential level in 2021, state whether each of the following will be higher, lower, or the same if this economy had taken no action.

i Real GDP

ii Potential GDP

iii The inflation rate

iv The unemployment rate

d) Now let us suppose that real GDP in 2021 was higher than the potential GDP in 2021. What would your answer to part a) and part b) be under this scenario?

Reference no: EM133063306

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