AB 204 Unit 9 Assignment Monetary and Fiscal Policy, Macroeconomic Fl AB 204 Unit 9 Assignment Monetary and Fiscal Polic | Página 2

Assume the government lowers taxes, which increases the household’s
disposable income. However, the government purchases (spending)
remains the same. (See the set of graphs below and shifts in graphs)
2. Suppose the economy of a hypothetical country has reached its long-
run macroeconomic equilibrium when each of the following aggregate
demand shocks occurs. What kind of gap, inflationary or recessionary
gap, will the economy face after the AD shock indicated by the shift in
AD curves? What types of fiscal policy instruments will help move the
economy back to the potential level of output (real GDP)? Give specific
examples.
At the long-run macroeconomic equilibrium, the stock market boom
occurs and this increases the value of stocks households hold. (See the
set of graphs below and shifts in graphs in the two-steps)
The government increases its purchases (spending) due to natural
disasters. (See the set of graphs below and shifts in graphs)
Assume the Central Bank reduces the money supply in the economy
which leads to an increase in the interest rates. (See the set of graphs
below and shifts in graphs)