Question

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.

Answer 1

Solution to Problem:

Macropoland is currently experiencing great recession. During Recession of any country Expansionary monetary and expansionary fiscal policy plays vital role to shape the country's economic growth in better way.

As a economic adviser , these action are adopted.:

- As per expansionary monetary policy, if recession threatens the centrakl banks should uses this policy to increase the money supply in the market. It should increase the quantity of loans,reduce interest rates,and shift aggregate demand to the rifht direction.

- If inflation threatens, the central bank uses contradictory monetary policy to reduce the money supply , reduce the quantity of loans,and raise the interest rates and aggregate demand to left.

- By using expansionary fiscal policy we can increase the level of aggregate demand through either increase in government spending or reducing tax rate. We can increase the consumption of people by raising disposable income bymeans of cutting the personal income taxes.

- We can increase investment by raising after tax profits through cuts in business taxes.

- We can increase government purchases by increaseing federal government spending on final goods and services and some compliances for state and local governement regarding spending.

Evidence of facts: During 2008-2009 U.S Economy recession, the aggregate demand and aggregate supply for country was below the level of potential GDP. As recession happens and remained for long time , consumption and employment were affected drastically. The unemplyment rate increased. During that period expansionary fiscal policy like tax cuts and government spending increased the aggregate demand for economy.