Should the government use monetary and fiscal policy

Reference no: EM133408913

Questions:

Should the government use monetary and fiscal policy in an effort to stabilize the economy? The following questions address the issue of how monetary and fiscal policies affect the economy, as well as the pros and cons of using these tools to combat economic fluctuations.

The following graph plots hypothetical aggregate demand (AD), short-run aggregate supply (AS), and long-run aggregate supply (LRAS) curves for the U.S. economy in January 2026.

Suppose the government chooses to intervene in order to return the economy to the natural level of output by using (A CONTRACTIONARY or AN EXPANSIONARY) policy.

Depending on which curve is affected by the government policy, shift either the AS curve or the AD curve to reflect the change that would successfully restore the natural level of output.

Reference no: EM133408913

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