Monetary and Fiscal Policy: Explain with the aid of diagrams, how an increase in Government spending...

Monetary and Fiscal Policy:

Explain with the aid of diagrams, how an increase in Government spending in a small open economy affects the Aggregate Demand curve:

a. Assuming a flexible exchange rate

b. Assuming a fixed exchange rate.

NO HANDWRITINGS PLEASE. I CAN'T READ MOST OF THE HANDWRITINGS, UNFORTUNATELY. THANKS IN ADVANCE FOR TYPING ANSWERS

Expert Solution

ANSWER:

A)

Here the rise in government spending will increase the government spending and hence that the real GDP and GNP will increase causing demand for getting money more therefore the interest rates will rise.

As result the home country will appreciate because of rising interest rate under floating exchange rate.

Then that foreign currency will be depreciate .

the graph is shown below

B)

Suppose if the government increased spending the aggregate demand rises and hence that the rral output and Real gross density product (GDP) is increase because of higher consumption.

due to since exchange rate is fixed, This also raises gross national product (GNP) and hence money demand rises will causing interest rate to rise.

Then excess demand for a home country currency will thus be intervened by central bank by buying of foreign currency at fixed rate.

the graph is shown below

Rahul Sunny answered 1 year ago

With the aid of diagrams, explain how fiscal and monetary policies can be used to deal...

With the aid of diagrams, explain how fiscal and monetary policies can be used to deal with the problem of unemployment.

The expansionary fiscal policy, such as the government spending increase. In reality the effectiveness of such...

The expansionary fiscal policy, such as the government spending increase. In reality the effectiveness of such an expansionary fiscal policy will likely be limited by numerous factors because of the crowding-out effect. As you may be aware, Fed has kept the interest rate at its lower bound, i.e., close to zero, and in this situation the LM curve becomes completely flat. Use the IS-LM framework to explain whether the government spending increase becomes more or less effective in this particular...

Explain, with aid of diagrams, the effects of an expansionary fiscal policy under the classical theory...

Explain, with aid of diagrams, the effects of an expansionary fiscal policy under the classical theory and the Keynesian model. Compare and contrast the effects under the two models. How would these differences affect their conclusion on the role of government? (20%)

Define fiscal policy and then define monetary policy. Explain how the government uses each policy when...

Define fiscal policy and then define monetary policy. Explain how the government uses each policy when the economy is too hot and inflation is rising. Then explain how each policy is used when the economy is in recession.

DEFINE FISCAL POLICY. WOULD THE INCREASE OF $100 IN GOVERNMENT SPENDING HAVE THE SAME EFFECT ON...

DEFINE FISCAL POLICY. WOULD THE INCREASE OF $100 IN GOVERNMENT SPENDING HAVE THE SAME EFFECT ON GDP AS OF DECREASE IN TAXES OF $100? WHY OR WHY NOT?

Explain Fiscal policy and Monetary policy

how to draw a expansionary fiscal policy through government deficit spending

The Federal Reserve uses monetary policy to print money. create money. increase taxes. increase government spending....

The Federal Reserve uses monetary policy to print money. create money. increase taxes. increase government spending. force banks to loan money.

If, according New Classical economists, fiscal policy is inadequate because any government spending increase causes: a....

If, according New Classical economists, fiscal policy is inadequate because any government spending increase causes: a. most households save rather than spend. b. business to decrease their investments. c. private individuals to spend more and save less.

Q1: Assume that there is a simultaneous increase in government spending and a monetary contraction. In...

Q1: Assume that there is a simultaneous increase in government spending and a monetary contraction. In a flexible exchange rate regime, we know with certainty that such a policy mix will cause which of the following? Group of answer choices A decrease in output. A decrease in the domestic interest rate. None of the other answers is correct. A depreciation of the domestic currency. A decrease in net exports. Q2: As product markets become more competitive and the mark-up ratio...

Question