tools 4 2 points What could the US government do to stabiliz

tools. 4. (2 points) What could the U.S. government do to stabilize the economy? List all fiscal policy 5. (5 points) Illustrate fiscal policy actions on the ISLM and ADAS graphs. 6. (5 points) Discuss the problem of policy lags. Hint: think about how and why monetary policy lags are different from fiscal policy lags. 7. (5 points) What happens to the Price Level after monetary policy actions? What happens to the Price Level after fiscal policy actions? Explain whv

Solution

4) The US government can use various fiscal measures to stabilize the economy such as taxation and government spending

Taxation- in taxation,when the economy is in recession,the government can undertake expansionary fiscal policy lower the tax rates and provide tax cuts which leaves people with more income and so it helps in increasing the aggregate demand and recover the economy.Whereas,when the economy is having inflation,the government can increase the taxes as part of contractionary fiscal policy which will lower the purchasing power and so the aggregate demand.

Governemnt spending-when the economy is in recession,the government undertakes expansionary fiscal policy and increases spending which boosts the aggregate demand in the market whereas when the economy is having inflation,the government will undertake contractionary fiscal policy and cut down its spending which will cut demand and lower the inflation rate.