Business, 26.12.2019 19:31 yuvin

Use of discretionary policy to stabilize the economy

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, and the pros and cons of using these tools to combat economic fluctuations.

the following graph shows a hypothetical aggregate demand curve (ad), short-run aggregate supply curve (as), and long-run aggregate supply curve (lras) for the u. s. economy in february 2020.

suppose the government decides to intervene to bring the economy back to the natural level of output by using (expansionary/contractionary) 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.

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Use of discretionary policy to stabilize the economy

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