Monetary and Fiscal Policy

Unit 9 [204]

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Unit 9 Assignment: Monetary and Fiscal Policy, Macroeconomic Fluctuations, and Macroeconomic Equilibrium 1. Your Assignment should have a cover sheet with the following information:

● Your Name ● Course Number ● Section Number ● Date

2. You may submit your Assignment using the Unit 9 Assignment template.

3. Your answers should follow APA formatting by being in double-spaced paragraph format, with

citations to your sources and, at the bottom of your last page, a list of references. Your answers

should also be in Standard English with correct spelling, punctuation, grammar, and style.

4. Respond to the questions in a thorough manner, providing specific examples of concepts, topics,

definitions, and other elements asked for in the questions. Your answers should be highly organized, logical, and focused.

 

Assignment This Assignment deals with how monetary and fiscal policy instruments are utilized to deal with

macroeconomic fluctuations in order to achieve long-run macroeconomic equilibrium through changing the aggregate demand (AD) and Aggregate Supply (AS) in the economy.

1. Refer to the sets of the aggregate demand, short-run aggregate supply, and long-run aggregate supply curves. Use the graphs to explain the process and steps by which each of the following economic scenarios will shift the economy from one long-run macroeconomic equilibrium to

another equilibrium. Under each scenario, elaborate the short-run and long-run effects of the shifts in the aggregate demand and aggregate supply curves on the aggregate price level and aggregate output (real GDP).

a. Suppose the household wealth decreases due to a decline in the stock market asset prices (see the set of graphs below and pay attention to the 3-stage shifts in

graphs).

 

 

 

 

Unit 9 [204]

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b. Assume the government lowers taxes, which increases the household’s disposable income. However, the government purchases (spending) remains the same (see the set of graphs below and shifts in graphs).

 

 

2. Suppose the economy of a hypothetical country has reached its long-run macroeconomic equilibrium when each of the following aggregate demand shocks occurs.

 

a. At the long-run macroeconomic equilibrium, the stock market boom occurs and this increases the value of stocks households hold. (See the set of graphs below and shifts in graphs in the two-steps.)

1) What kind of GAP exists (inflationary or recessionary)? 2) Which part of the FED’s Congressional mandate (full employment or stable prices)

does this situation trigger?

3) What kind of MONETARY policy might be helpful (increase or decrease money supply)?

4) What kind of FISCAL policy might be helpful (expansionary or contractionary)?

5) What specific FISCAL policy TOOLS can the government employ that would be helpful?

 

b. The government increases its purchases (spending) due to natural disasters. (See the set of graphs below and shifts in graphs.)

 

 

 

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1) What kind of GAP exists (inflationary or recessionary)?

2) Which part of the FED’s Congressional mandate (full employment or stable prices) does this situation trigger?

3) What kind of MONETARY policy might be helpful (increase or decrease money

supply)? 4) What kind of FISCAL policy might be helpful (expansionary or contractionary)? 5) What specific FISCAL policy TOOLS can the government employ that would be

helpful?

 

c. Assume the Central Bank reduces the money supply in the economy which leads to an increase in the interest rates. (See the set of graphs below and shifts in graphs.)

 

1) What kind of GAP exists (inflationary or recessionary)? 2) Which part of the FED’s Congressional mandate (full employment or stable prices)

does this situation trigger? 3) What kind of MONETARY policy might be helpful (increase or decrease money

supply)?

4) What kind of FISCAL policy might be helpful (expansionary or contractionary)? 5) What specific FISCAL policy TOOLS can the government employ that would be

helpful?

 

Directions for Submitting Your Assignment

Before you submit your Assignment, you should save your work on your computer in a location and with a name that you will remember. Make sure your Assignment is in the appropriate template

provided. Then, when you are ready, you may submit to the Dropbox.

 

Unit 9 Assignment: Monetary and Fiscal Policy, Macroeconomic Fluctuations, and Macroeconomic Equilibrium

Points Possible

Points Earned

Content and Analysis

Problem 1, Part a Correctly explained short-run effects on the aggregate price level and aggregate output.

3

 

Correctly explained long-run effects on the aggregate price level and aggregate output.

3

 

 

Unit 9 [204]

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Unit 9 Assignment: Monetary and Fiscal Policy, Macroeconomic Fluctuations, and Macroeconomic Equilibrium

Points Possible

Points Earned

Problem 1, Part b

Correctly explained short-run effects on the aggregate price level and

aggregate output.

3

 

Correctly explained long-run effects on the aggregate price level and aggregate output.

3

Problem 2, Part a

Correctly identified what kind of gap exists.

 

3

 

Explained what type of monetary policies would help move the economy back to potential output.

3

Explained what type of fiscal policies would help move the economy back to potential output.

3

Problem 2, Part b Correctly identified what kind of gap exists.

4

 

Explained what type of monetary policies would help move the economy back to potential output.

4

Explained what type of fiscal policies would help move the economy back to potential output.

4

Problem 2, Part c

Correctly identified what kind of gap exists.

 

4

 

Explained what type of monetary policies would help move the economy back to potential output.

4

Explained what type of fiscal policies would help move the economy back to potential output.

4

Writing style, grammar, and APA formatting. 5

Total 50

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