3. Graphically illustrate and carefully explain how the U.S. economy could achieve the macroeconomic goals of...

3. Graphically illustrate and carefully explain how the U.S. economy could achieve the macroeconomic goals of full employment, strong economic growth, and price level stability in the short-run.

Expert Solution

US can achieve macroeconomics goals through an expansionary fiscal policy by reducing taxes and inducing higher spending and automatic stabilizers as well as expansionary monetary policy by central bank to infuse liquidity into markets through cutting down interest rates, cash reserve ratio and statutory liquidity ratio and reverse repo rates as well as bond buying programmes through OMO.

This will lead to higher disposable incomes and induce consumption which boost aggregate demand and real GDP and stabilises prices. Moreover larger credit availability to firms means higher hiring practices and thus full employment is achieved.

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