Los 15.d

Question 1

Explain what would happen when there is Expansionary fiscal and monetary policy.

Answer 1

The impact will be highly expansionary, taken together. Interest rates will usually be lower (due to monetary policy), and the private and public sectors will both expand.

Question 2

Explain what would happen when there is Contractionary fiscal and monetary policy.

Answer 2

In this case, aggregate demand and GDP would be lower, and interest rates would be higher due to tight monetary policy. Both the private and public sectors would contract.

Question 3

Explain what would happen when there is Expansionary fiscal policy and contractionary monetary policy.

Answer 3

In this case, aggregate demand will likely be higher (due to fiscal policy), while interest rates will be higher (due to increased government borrowing and tight monetary policy). Government spending as a proportion of GDP will increase.