Question

3)Discuss which of the fiscal and monetary policies would be more effective in an open economy

4)Explain the impact of an increase in public spending, taking into account the three areas of the total supply curve. How the assumptions about expectations effect the slope of the total supply curve? this lesson is fiscal policy please answer with consider

Answer 1

Effects of Fiscal & Monetary policies
An open economy which has a fixed exchange rate system will be more effective in applying fiscal policies since monetary policies are not much effective in economic growth. An open economy with flexible exchange rate would have better economic experience and growth through monetary policies since the change in monetary policies could affect the exchange rate leading to further expansion in whole of the economy.
An increase in public spending could stimulate the growth of the economy by encouraging the aggregate demand for commodities. Government spending will shifts the supply curve to the right after the demand increases for the commodity. A welfare, infrastructural, educational spending have behavioral difference in the exact output they pose, as an overall, the supply curve will have a positive benefit from the government spending. Short run increase in demand will boost the functioning of the economy thus encouraging producing more output in the long run. Classical suggests the idea of ineffective government intervention since they call up for a free market. Keynesian idea is more depended on demand and spending, government spending has notable effect on the growth of economy. The expectation of increase in income in the future can definitely affect the demand curve to shift producing more units of output. Thus the aspects of government spending may change on how they spend the money, as an aggregate the effect will positively affect the supply curve encouraging more production and growth of economy.