In an effort to move the economy out of a recession, the federal government would engage in expansionary economic policies. Respond to the following points in your paper on the actions the government would take to address expansionary fiscal and monetary policies:
Expansionary Fiscal Policy:
Explain the actions the federal government would take while engaging in expansionary fiscal policy in terms of the following:
- The necessary change in taxes and government spending,
- The effect on aggregate demand, GDP, and employment.
Expansionary Monetary Policy:
The three tools the Federal Reserve Bank (The Fed) uses when conducting monetary policy are the required reserve ratio, the discount rate, and open market operations.
Explain the actions of the Fed in regard to the three tools.
- When the required reserve ratio is increased or decreased
- When the discount rate is increased or decreased
- Buying or selling government securities when conducting expansionary monetary policy
Explain how these actions would affect the money supply, interest rates, spending, aggregate demand, GDP, and employment.