Question

As an economic analyst, you were asked to provide your opinion about the impact of the financial crisis on the economy by using the new classical model. If the government implemented monetary expansion policy that is less than expected, what would your expectations be when it comes to the effects on real output in the short-run and the long-run?

Answer 1

Financial crisis has caused largescale unemployment, wholesome deflation, larger erosion of corporate profits, loss in trade and activity, lower forex reserves, higher structural unemployment as well as lower disposable incomes and thus lower GDP per capita.

If government adopted monetary expansion policy the expectations would be shorter both in long run and short run as its not enough to boost liquidity into market. Government needs to adopt expansionary fiscal policy by reducing taxes and inducing higher spending and triggering automotic stabilizers and combined with structural reforms on time to avoid implementation lag to revive economy.

PLEASE UPVOTE INCASE YOU LIKED THE ANSWER WILL BE ENCOURAGING FOR US THANKYOU VERY MUCH ALL THE BEST IN FUTURE