reduce the budget deficit - If the government wants to...

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If the government wants to reduce the budget deficit, how can the central bankkeep the economy from going into a recession? Use the closed economy IS-LM model toillustrate graphically the impact of both the fiscal policy reducing the deficit and the monetarypolicy, which prevents output from falling. Be sure to label: ii. the curves; iii. the initial equilibrium values; iv. the direction the curves shift; and v. the terminal equilibrium values. Fiscal policy are directly used by the government to curb its deficit. It does it with the help of certain fiscal tools like taxes, government debt and spending. In case of deficit and recession the government generally tries to go for expansionary policy whereby the government cuts the taxes and improves its spending. This results in more money supply in the market. This in fact end in better investments.

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