Solved: Suppose someone says, Using monetary or fiscal policy to pump up the economy is

Chapter 0, Problem 3

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QUESTION:

Suppose someone says, Using monetary or fiscal policy to pump up the economy is counterproductiveyou get a brief high, but then you have the pain of inflation. a. Explain what this means in terms of the ADAS model. b. Is this a valid argument against stabilization policy? Why or why not?

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QUESTION:

Suppose someone says, Using monetary or fiscal policy to pump up the economy is counterproductiveyou get a brief high, but then you have the pain of inflation. a. Explain what this means in terms of the ADAS model. b. Is this a valid argument against stabilization policy? Why or why not?

ANSWER:

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The AD-AS model represents the interaction of aggregate demand and the aggregate supply of the economy. The aggregate demand is downward sloping, and the aggregate supply curve is upward sloping.

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