Question

If the United States economy is currently in an expansion, what problem is the economy beginning to suffer? Due to this problem identify and explain the monetary and fiscal policies that Congress and the Federal Reserve will use to help fight this problem. Be sure to identify which policies are fiscal and which policies are monetary. Finally, if these policies are put in place what can we expect to happen to aggregate demand?

Answer 1

Explanation:

As the economy of the United States begins to expand the problem of maintaining adequate aggregate demand may arise because of the need to use the increase in output in the economy.

In other to fight this problem both monetary and fiscal policies can be used. Congress can use the following Fiscal policies:

• propose new legislation that would cut taxes so that people have more money to spend within the economy.
• they can also make resolutions to increase government spending

While the Federal Reserve can use the following Monetary policy:

• reducing the interest rates

By putting these policies in place we can expect the aggregate demand to increase alongside the economic expansion.