Why governments typically employ a fiscal policy-monetary

Reference no: EM133377056

Question: Clearly explain why governments typically employ a fiscal policy-monetary policy mix in combating recessionary trends in an economy. A hypothetical scenario would be where GDP has decreased for 5 consecutive quarters, but wages and prices have not fallen commensurately. The rate of inflation is still moderately high at 7 % per annum; in this situation, should a government increase government spending or should it lower the overnight discount or repo rate or should it deploy a combination of fiscal policy-monetary policy tools ? Assume that the government in question is conservative about using quantitative easing. You may use the basic IS-LM model to explain your answer.

Reference no: EM133377056

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