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1. Suppose you’re looking at data for nominal GDP and you see that nominal GDP increased...

1.

  • Suppose you’re looking at data for nominal GDP and you see that nominal GDP increased for the last 10 straight years. Would you conclude that the economy was necessarily better off in each year? Why or why not?

2.

  • Suppose you are a policymaker and you want to increase GDP using fiscal and monetary policy to boost aggregate demand. How would you boost demand using fiscal policy? What about monetary policy? Explain exactly how you envision your policy working.
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1 No because it might be simply due to rise in prices

2 By increasing Govt expenditure and/or reducing taxes. This will increase Aggregate demand which will inturn met by increase in quantity supplied. Thus Gdp rises. Monetary policy can be implemented by increasing money supply through purchasing securities in open market operations, reduce reserve requirements and reducing bank rates. These steps reduce cost of funds to banks which inturn decrease their own lending rates. Lower interest rates lead to more investment as interest rates and investment are inversely related. This leads to increase in Aggregate demand

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