Question
In: Economics
As the Canadian government tries to stimulate the economy using monetary policy, it faces some dangers...
As the Canadian government tries to stimulate the economy using monetary policy, it faces some dangers and challenges. What are those dangers and challenges? How can they be managed?
Solutions
Expert Solution
Answer - As a part of stimulating the economy, the central bank will implement the expansionary monetary policies . This will comprise of fall in reserve ratio , open market purchase etc. These tools increase the overall AD of the economy by stimulating consumption and investment. Hence AD rises and due to this the price level rises along with GDP. This leads to rise in inflation in economy. This is the problem with the expansionary monetary policy. In order to combat this , the supply also needs to rise to bring down price level. This can be done by expansionary fiscal policy which leads to rise in investment and supply. Rise in supply will lead to fall in price level and bring it back to level where it was before. Also , after some time , contractionary monetary policy can also be formulated.
Rahul Sunny answered 2 years agoRelated Solutions
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policy tools would you use to stimulate aggregate demand and how?
e. What is your conclusion, should policymakers use the monetary
and or fiscal policy to stimulate aggregate...
When is it appropriate to use monetary and fiscal policy to stimulate or stabilize the economy?...
When is it appropriate to use monetary and fiscal policy to
stimulate or stabilize the economy?
b. When is it inappropriate to use monetary and fiscal policy to
stimulate or stabilize the economy?
c. What specific fiscal policy tools would you use to stimulate
aggregate demand and how?
d. What specific monetary policy tools would you use to
stimulate aggregate demand and how?
e. What is your conclusion, should policymakers use the monetary
and or fiscal policy to stimulate aggregate...
When is it appropriate to use monetary and fiscal policy to stimulate or stabilize the economy?...
When is it appropriate to use monetary and fiscal policy to
stimulate or stabilize the economy? b. When is it inappropriate to
use monetary and fiscal policy to stimulate or stabilize the
economy? c. What specific fiscal policy tools would you use to
stimulate aggregate demand and how? d. What specific monetary
policy tools would you use to stimulate aggregate demand and how?
e. What is your conclusion, should policymakers use the monetary
and or fiscal policy to stimulate aggregate...
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3. A
country wants to stimulate its economy by increasing government
spending (fiscal policy). The economy is an open economy
with flexible exchange rates.
What will be the impact of the increased spending?
Consumption will ______________ (increase / decrease).
Investment by businesses will ______________ (increase /
decrease).
Aggregate demand will ______________ (increase / decrease).
Real GDP and income in the country will ______________ (increase
/ decrease).
Imports of goods will _____________ (increase / decrease) as
income increases.
The current account will ___________________...
Should the government use monetary and fiscal policy in an effort to stabilize the economy?
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Should the government use monetary and fiscal policy in an effort to stabilize the economy?
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What are two drawbacks to using monetary policy to stabilize the economy
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Discuss how crowding out may alter the actual effect of this
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Explain using a macroeconomic equation of the GDP, how
government can use fiscal policy to stimulate the economy?
There are pros and cons of using monetary and fiscal policy tools to stabilize the economy....
There are pros and cons of using monetary and fiscal policy
tools to stabilize the economy.
Explain the main arguments in favor of economic stabilization
during recessions. Explain why policy lags could make stabilization
policies counterproductive.
What are the justifications given in favor of more government
involvement in the market economy? What are the reasons given in
favor of less government involvement in the market economy?
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