In the AD-AS model(aggregate demand-aggregate supply), what is expected to happen if the government adopts expansionary fiscal policy while the central bank adopts contractionary monetary policy?A.Inflation rises in the short run，output falls in the long runB.Deflation rises in the short run, output rises in the long runC.Inflation rises in the short run, output rises in the long runD.Deflation rises in the short run, output falls in the long run
Question
In the AD-AS model(aggregate demand-aggregate supply), what is expected to happen if the government adopts expansionary fiscal policy while the central bank adopts contractionary monetary policy?A.Inflation rises in the short run，output falls in the long runB.Deflation rises in the short run, output rises in the long runC.Inflation rises in the short run, output rises in the long runD.Deflation rises in the short run, output falls in the long run
Solution 1
The answer is A. Inflation rises in the short run, output falls in the long run.
Here's why:
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Expansionary fiscal policy involves increasing government spending or decreasing taxes. This increases aggregate demand, which shifts the AD curve to the right. In the short run, this leads to an increase in both output and the price level (inflation).
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Contractionary monetary policy involves increasing interest rates or decreasing the money supply. This decreases aggregate demand, which shifts the AD curve to the left. In the long run, this leads to a decrease in output.
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The combined effect of these two policies is that in the short run, the increase in aggregate demand from the fiscal policy leads to inflation. In the long run, the decrease in aggregate demand from the monetary policy leads to a fall in output.
Solution 2
In the AD-AS model, if the government adopts an expansionary fiscal policy, it means that the government is increasing its spending or decreasing taxes to stimulate the economy. This would shift the aggregate demand curve to the right, leading to an increase in the price level (inflation) and an increase in output in the short run.
On the other hand, if the central bank adopts a contractionary monetary policy, it means that the bank is trying to reduce the money supply in the economy, usually by increasing interest rates. This would shift the aggregate supply curve to the left, leading to a decrease in output in the long run.
Therefore, the correct answer is A. Inflation rises in the short run, output falls in the long run.
Similar Questions
In the AD-AS (Aggregate Demand-Aggregate Supply) model, what is the likely outcome if the central bank implements an expansionary monetary policy?A.The aggregate demand (AD) curve shifts to the right, leading to increased real GDP and potential inflation.B.The aggregate demand (AD) curve shifts to the right, resulting in increased real GDP, but the impact on inflation depends on the position of the short-run aggregate supply (SRAS) curve.C.The aggregate supply (AS) curve shifts to the right, causing increased real GDP and lower inflation.D.The short-run aggregate supply (SRAS) curve shifts to the right, causing a decrease in real GDP and potential deflation.SUBMIT ANSWER
In the AD-AS model, what happens if the central bank implements a contractionary monetary policy?A.The aggregate demand curve shifts to the right, inflation increases.B.The aggregate demand curve shifts to the left, inflation decreases.C.The aggregate supply curve shifts to the right, inflation decreases.D.The aggregate supply curve shifts to the left, inflation increases.
According to the AD-AS (Aggregate Demand-Aggregate Supply) Model, which of the following statements is true?A.A) An increase in government spending will always result in higher inflation and output in the short run.B.A shift to the left of the short-run aggregate supply curve will lead to higher long-run economic growth.C.An increase in aggregate demand will only affect the price level in the long run, not in the short run.D.A decrease in the money supply will shift the aggregate demand curve to the right.
If expansionary fiscal policy is followed by contractionary monetary policy, nominal interest rate and employment would most likely be affected in which of the following ways in the short-run?
In the AD-AS Model, if the central bank implements an expansionary monetary policy (such as lowering interest rates), which of the following options most accurately describes the short-term changes in the Aggregate Demand (AD) curve and the Short-Run Aggregate Supply (SRAS) curve?A.AD shifts to the right; SRAS remains unchanged.B.AD shifts to the left; SRAS shifts to the right.C.AD remains unchanged; SRAS shifts to the left.D.AD shifts to the right; SRAS shifts to the left.
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