Fiscal-Monetary Policies
(a) After 2008 the US Government sought the solution to the crisis. They consider between the Fiscal stimulus and the Monetary expansion. Use a positive-sloped LM and a negative-sloped is to show how Fiscal stimulus could expand the national output in one diagram and show how Monetary expansion could rescue the economy in another diagram. Explain in details how output could change from the initial equilibrium to the new equilibrium. What the assumptions we must have to ensure economic expansion are. (You can use the Money Market diagram and the Demand/production diagram to explain too)
(b) In the mid 2000s US economy was rapidly expanding due to the housing market boom. The Government considered between a reduction in budget deficit and Monetary contraction in order to cool down the economy. Use a positive-sloped LM and a negative-sloped IS to show how Fiscal contraction could decrease the national output in one diagram and show how Monetary contract.