Question

Essay 1

Macropoland is currently experiencing a recession--consumption and investment are very sluggish, and unemployment is quite high at 9%. Currently, inflation is very low at 0.4% (the historical average rate of inflation is about 2%). The Macropolish President has just hired you as her economic advisor. Your job is to prescribe policy that would enable the economy to recover from the recession. Explain how you could use the standard tools of expansionary monetary policy and expansionary fiscal policy to stimulate this economy towards economic growth.

Develop a response that includes examples and evidence to support your ideas, and which clearly communicates the required message to your audience. Organize your response in a clear and logical manner as appropriate for the genre of writing. Use well-structured sentences, audience-appropriate language, and correct conventions of standard American English.

In your own words!

Answer 1

Answer:

Recession means circulation of littile money sothat very little investment .. The polices that increase money circulation are .

1) Ineterest rates to be reduced

2) Government should increase the spendingd

3) Tax rates should be cut or prohibited

4)Reserve ratio to be reduced .

By above policies the aggregate demand will increase due to money circulation policies. As too much money is chasing only few there are increase in prices .

• As The Economy is in doldrums,a policy is mixed of both Expansionary and monitory policies .
• Expansionary plocy is need to increase the overall level of aggregate demand in the economy .
• By considering government role in this scenario, expanionary fiscal policy should include increasing governmentspending and tax rate reducing in the economy .
• So that stimulation of consumption levels and increase the equilibrium nationalk levels are possible .
• As the firms will hire more workers to produce oputput, Inturn this also raise the production and reduce unemployment.
• The overall price level will rise on the economy due to rise in aggregate demand .

Onthe otherhand , Fed should lower inrterest rate through open market purchase of the government Securities which will increase money supply in the economy and reduces the rate of Interest .

The reduced interest rate along with raising aggregate in abovewill lead to risein investment. As the business sentile will give optimistic future expectations of the saleof their product sothat overall national income leads raise in economy .