Question

1o. What happens in the long run, if the economy self adjusts, to: Output?____

Unemployment? _________

Price level? ___________

1r. What policies could the government use to stabilize the economy?

1k. How would these policies work?

1s. What happens in the long run, if the government uses policy, to: Output?_________

Unemployment? _____________

Price level? _____________

1t

Answer 1

10.Output will be at its full employment level and there will be no involuntary unemployment.Prices,all variables will adjust themselves and will be not needed any government measure.

11.Government can use monetary and fiscal policy.

According to the supply side economists,government can focus on increasing supply,raising the income of people by reducing the tax rates which will lead to increase in savings and increase in investment.

According to the keynes,Government should be using fiscal policy to stablizie the economy by rasing the aggregate demand.

Monetarists focuses on Monetary policy,that by increasing the supply of money ,government can stabilize the economy.