Describe the particular policy mix that accounts for the favorable economic conditions of the late 1990s. Be sure to specify the fiscal and monetary policies pursued during this period.
What will be an ideal response?
Through a combination of government spending reductions and tax increases in the 1990–1997 period, the budget deficit was not only reduced but the federal government actually began to run budget surpluses. The effect of these changes by themselves would be to reduce aggregate demand and increase unemployment and reduce economic growth. However, in addition to contractionary fiscal policy, the Fed was able to pursue an expansionary monetary policy focusing on maintaining relatively low interest rates. This had an expansionary effect on investment spending as well as stimulating economic growth and productivity. This expansionary monetary policy ensured that aggregate demand did not shift inward during this time.
You might also like to view...
If consumers reduce the purchase of goods whose relative prices rise (substitution bias), the consumer price index (CPI) will tend to have an upward bias over time (overstates inflation)
a. True b. False Indicate whether the statement is true or false
Suppose ice cream cones costs $3 . Molly holds $60 . What is the real value of the money she holds?
a. $60 . If the price of ice cream cones rises, to maintain the real value of her money holdings she need to hold more dollars. b. $60 . If the price of ice cream cones rises, to maintain the real value of her money holdings she need to hold fewer dollars. c. 20 ice cream cones. If the price of ice cream cones rises, to maintain the real value of her money holdings she needs to hold more dollars. d. 20 ice cream cones. If the price of ice cream cones rises, to maintain the real value of her money holdings she needs to hold fewer dollars.
A move from J to K represents
A. a change in quantity supplied.
B. no change in supply.
C. an increase in supply.
D. a decrease in supply.
The fraction of a change in disposable income that is consumed is called _____
Fill in the blank(s) with the appropriate word(s).