Concurrent Fiscal and Monetary Policy
Imagine a standard aggregate demand and aggregate supply
set-up As you know, the British government has been reducing government
expenditures to reduce fiscal deficit and government debt
A Using
this framework, show the effect on aggregate demand and supply and output,
assuming that before this new fiscal policy, the economy was in long-term
equilibrium Show where you would expect the new short- and long-run
equilibrium
B For
short-term analysis: What would be the multiplier of this austerity program if
MPS is 02, MPM is 01 and MPT is 02?
C How can
monetary policy ease the pain of austerity? Illustrate in the graph
D Critics
argue that this program can do long-term damage to the British economy Using
the same aggregate demand and aggregate supply framework, show how this would
work Provide economic arguments
E Unemployment
often takes a long time to decrease even after the economy has exited a
recession, though it eventually will There is often a fear, however, that this
time the unemployment rate will stay constantly high Discuss the two sources
of unemployment behind these two arguments