Question

2. Addressing recession using Fiscal and Monetary Policy tools.

Scenario - The US economy is currently experiencing recession. You have Fiscal and Monetary policy tools available to address this problem:

Q1. To attack the problem of recession, you must select at least one Monetary Policy tool and one Fiscal Policy tool. Write down the name of your Fiscal Policy tool and your Monetary Policy tool.

--Think the options through and write down your choices.

Q2. Please explain why you selected the tools that you selected and why you did not select the other choices? Do this for both monetary and fiscal policy tools!

--Specifically, explain what is so good about the tool you selected and what is not so good about the tools you did not select? Do this for both the Monetary Policy tool and the Fiscal Policy tool. The key here is to use some decision criteria in making your choice.

Q3. Thoroughly and completely explain how your solution (both monetary and fiscal policy tools) would work to solve the problem of recession, and indicate the impact your solution would have on the key economic variables. Be specific.

--Present this using the chain of events format with up or down arrows to indicate the direction of impact on each variable.   I need to see the detail.

Please answer all of the questions. Thanks :)

Answer 1

Answer 1:

To attack recession in the economy, expansionary fiscal policy of the government and monetary policy of the Central Bank is needed to move the economy out of recession. One of the major fiscal tools that can be used by the government is increasing government expenditure. This will help in increasing overall aggregate demand in the economy. For expansionary monetary policy of the government, increasing money supply by purchasing government securities in the open market in the next best option for the Fed to fight recession.