ECON105week8questions - Use the natural policy as the...

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QUESTION 1 Consider an economy that is in an inflationary gap. (a) If monetary policy is used as the long-run solution, show what happens using a MONEY graph. (b) How does the monetary policy affect debt? QUESTION 2 Imagine the economy is initially at potential. Then the government decides to use expansionary fiscal policy (EFP) by lowering the net tax rate (t). (a) Show what happens immediately and in the short-run using an OUTPUT graph. (b) Are bond prices higher initially or in the short-run?
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Unformatted text preview: Use the natural policy as the economy's long-run solution. (c) What happens to the budget deficit from the short-run to the long-run? (d) Where is investment higher: initially or in the long-run? QUESTION 3 Economy is currently in a recessionary gap. If the natural long-run solution is used, explain what happens to investment, net exports, and (public) debt. ECON105 week 8 questions Eldar Sehic SFU 2010-1...
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