For some reason, I never get the right multiple choice when it comes to expansionary fiscal
policy, can someone please try and explain it to me,
Thx作者: MiniMe7 时间: 2011-7-13 16:05
expansionary fiscal policy, isn't that level I? Post a question and I'll slam dunk it.作者: ninja1024 时间: 2011-7-13 16:05
I would think in this way. Fiscal policy means (remember FISCAL budget). Spending more by and that is what currently what US is doing. Expanding Monetary policy is to reduce interest rates作者: yospaghetti 时间: 2011-7-13 16:05
just know its the opposite of expan monetary作者: xilinx_altera 时间: 2011-7-13 16:05
Remember with each an expansionary/monetary policy expansion, there are 2 primary effects: real interest rate effects and price effects.
An expansionary monetary policy will cause interest rates to decrease, cause the financial account to decline, which causes the currency to depreciate, which will be offset by greater exports. The overall effect is an economic stimulus. This is the real interest rate effect.
An expansionary monetary policy will cause domestic prices to increase, increase the demand for imports which decreases the current account, which causes the currency to depreciate, which is offset by an increase in the financial account which brings temporarily depressed interest rates back to equilibrium. This is the price effect.
An expansionary fiscal policy will cause real interest rates to rise, attract foreign capital, which causes the currency to appreciate. The appreciating currency will cause exports to decline, which depresses the economy. This is the real interest rate effect.
An expansionary monetary policy puts upward pressure on domestic prices, which decreases the current account, which causes the currency to depreciate. As a result, the financial account increases as a result of more foreigners owning the local currency. This is the price effect.
