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Hey how you're doing econ students these isms. Clifford's welcome to ac/DC con let'review fiscal and monetary policy macroeconomics was created for only two reasons to measure the overall economy and to fix it if there's a problem when it comes to measuring the economythere'’s only three possible things that could be happening at any given period of time the economy can be in accession it can be at full employ mentor it can have an inflationary gap owlet×39’s analysis how to fix the problem let's start with a recession if their ISA recession we have only three different options we can use we can do no policy at all which is just to wait it out pecan use fiscal policy, or we can use monetary policy what you need to know show do these things affect the overall economy and what happens on the graph for example if we take no policy action at all in a recession what#39’s going to happen to aggregate supply well since behave high unemployment eventually wages are going to go down and resource price swill go down which means costs will go down and Agra supply will shift to the right this will put us back at full employment so remember the economy isself-correcting over time so if we do nothing eventually we'll go back to full employment the long-run aggregate supply now what about fiscal policy there are only two tools in the toolbox of fiscal policy they are government spending taxation so if there's a recession what do we do to government spending or what could we do to taxes in order to stimulate the economy and get us out of the recession well we can increase government spending, or we can cut taxes but wait taxes arena×39’t a shifter of aggregate demand well lowering taxes would increase consumer spending which would shift aggregate demand to the right the third option we can use is monetary policy this is controlling the money supply to effect interest rates and shift aggregate demand so when we#39’re in accession we want to increase the money supply this will decrease interest rate sand increase investment in consumption that will increase aggregate and close a recessionary gap but what causes an increase in the money supply I know that we need to increase money supply but how do we do it well there are three tools in the toolbox of monetary policy they are the reserve requirement the discount rate and open market operations so what could the Fed do to each one of these things get us out of a recession well they callower the reserve requirement which means banks can create more money they can lower the discount rate which means they can loan out more money to banks, or they can buy bonds when the Fed buys bonds it puts money in the system increasing the money supply so for the bottom two a great demand is increasing we#39’re speeding up the economy using some sort of government intervention and top on ewe're just waiting it out and lettingAgri supply increase putting us backfill employment now if you understand all that it#39’s the same thing...
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