The economy is at full employment, but the government is disappointed with the growth rate of real GDP. It wants to increase real GDP growth by stimulating investment. At the same time, it wants to avoid an increase in the price level. a.Suggest a combination of fiscal and monetary policies that will achieve the government’s objective. b.Which policy would you recommend that the government adopt? c. Explain the mechanisms at work under your recommended policy. d.What is the effect of your recommended policy on the composition of aggregate demand? eWhat are the short-run and long-run effects of your recommended policy on real GDP and the price level?

The economy is at full employment, but the government is disappointed with the growth rate of real GDP. It wants to increase real GDP growth by stimulating investment. At the same time, it wants to avoid an increase in the price level. a.Suggest a combination of fiscal and monetary policies that will achieve the government’s objective. b.Which policy would you recommend that the government adopt? c. Explain the mechanisms at work under your recommended policy. d.What is the effect of your recommended policy on the composition of aggregate demand? eWhat are the short-run and long-run effects of your recommended policy on real GDP and the price level?

Economics:

10th Edition

ISBN:9781285859460

Author:BOYES, William

Publisher:BOYES, William

Chapter15: Macroeconomic Viewpoints: New Keynesian, Monetarist, And New Classical

Section: Chapter Questions

Problem 5E

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The economy is at full employment, but the government is disappointed with the growth rate of real GDP. It wants to increase real GDP growth by stimulating investment. At the same time, it wants to avoid an increase in the price level. a.Suggest a combination of fiscal and monetary policies that will achieve the government’s objective. b.Which policy would you recommend that the government adopt? c. Explain the mechanisms at work under your recommended policy. d.What is the effect of your recommended policy on the composition of aggregate demand? eWhat are the short-run and long-run effects of your recommended policy on real GDP and the price level?

Definition Definition Policy implemented by the central bank of a country (such as the Federal Reserve in the United States) to achieve certain macroeconomic objectives. Monetary policy is a supply-side macroeconomic policy that supervises the growth rate and money supply in the economy.

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