More often than not, policymakers find it useful to employ monetary and fiscal p
ID: 1162034 • Letter: M
Question
More often than not, policymakers find it useful to employ monetary and fiscal policies in Suppose the ecc inflation at point policy mix to low com anying figure is experiencing ant to implement a same-direction combination isolation 1.) Using the 3-Pu ng tool, reflect the appropriate fiscal policy. Label your curve IS" LM 2.) Using the line drawing tool, reflect the appropriate monetary policy. Label your curve 'LM" Click the graph, choose a tool in the palette and follow the Instructions to create your graph.Explanation / Answer
More often than not, policymakers find it useful to employ monetary and fiscal policy in combination.
Now, suppose the economy is shown as in the following figure.
Because the LM curve is horizontal, therefore, there is ineffectiveness of monetary policy. Whatever will be the monetary policy , expansionary or contractionary , LM curve doesn't shift .
Therefore, to lower the output level, policymakers should use contractionary fiscal policy because by using contractionary fiscal policy , IS curve shifts to the left. And as a result there will be lower output in the economy.
This is shown in the below figure:
When the IS curve shifts to the left , then equilibrium output is Y1 and equilibrium is show by point B.
Because with contractionary fiscal policy , agregate demand curve also shifts to the left and as a result price level and output level both reduce.
Therefore, the fight against inflation is done viacontractionary monetary and fiscal policy policies and because moentary policy has no effect . Therefore, only contractionary fiscal policy is shown in the figure.
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