Rubric: Correctly explained the effect on employment 24. Propose an action that
ID: 1153701 • Letter: R
Question
Rubric: Correctly explained the effect on employment 24. Propose an action that the Federal Reserve Bank should take to address this problem. Explai should be taken and its effect Real GDP Price Level n why this acion Real GDP Price Level Rubric: 25. Propose an action that the US Government should take to address this problem. Explain why this action should be taken and its effect. correct action employment Real GDP Price Level budget deficit Rubric: correct actionemployment equal to 3 points pUE FRIDA - his is worth half the exhibition grade. Each rabrie point is e his is wExplanation / Answer
24.
Federal Reserve, should apply expansionary monetary policy that should involve increase in the money supply and reduction in the interest rate. It will make positive impact upon the employment and real GDP level will increase. It will also cause the price level to rise, though it will be within the range of proposed inflation rate target.
The impact of the expansionary monetary policy, will be as follows:
The increase in money supply, and lowering interest rate, will cause an increase in consumption spending as well as investment spending. It will cause the increase in aggregate demand. In response to the increase in aggregate demand, supply will also increase. It will create new jobs as input factors of the production. As a result, the unemployment rate will come down. Further, an increase in aggregate demand, duly met by the increase in supply, will cause an increase in real GDP. Since, the consumption spending increases, then, it will cause inflation to rise and price level will be at a higher side. Here, the Federal Reserve can set the inflation rate target and control the money supply and interest rates accordingly to bring price stability in the economy.
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