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Worksheet 6 - 1991 and 2001 Explain 9 What actions has the...

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Introduction to Macroeconomics Econ 104a,c,d,e,f, - Spring 2010 Worksheet 6 – Monetary Policy 1. How does expansionary monetary policy affect the economy in theory? 2. What is Fiscal Policy? How does it affect the economy in theory? 3. Why did Keynes believe that Fiscal Policy was more powerful/effective than Monetary Policy? 4. What is the Liquidity Trap? Are we in one now? What does this mean for monetary policy? 5. How does Monetarism differ from Keynesian Monetary Policy? What are its basic arguments? 6. What is crowding out? Why is it an argument against Fiscal Policy and a part of Monetarism?
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7. When did Monetarists take over in terms of Monetary Policy? What led to this change? 8. Monetary Policy, and Alan Greenspan, has been given credit for ending the last two economic recessions, of
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Unformatted text preview: 1991 and 2001. Explain. 9. What actions has the Fed been taking leading up to the current economic crisis? Discuss these actions since 2004. 10. Back to the Model, with crowding out: C = 200 + .9 (PDI) PDI = Y – Tx Tx = 300 G = 300 I = 800 – 10,000 (.03) (X – M) = 0 a. What is equilibrium income in the economy? What is the government budget? b. Now, the government tries to end a recession with a fiscal stimulus increase of 300, and to get this they borrow money by issuing bonds that increases the interest rate to 6% (.06). What is the new equilibrium income? What is the government budget? c. Explain what happened in this example. 11. During this current recession, the Federal Government has been able to borrow money at a very low rate. What is this about?...
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