A Apply the IS/LM framework to explain the following question. In the early1980’s, to combat the recessionary forces, President Ron Reagan used expansionary fiscal policy by lowering (marginal) tax rates to combat the recession. Concurrently, Paul Volcker, Chairman of the Federal Reserve Board of Governors, reduced the rate of growth of the money supply (reduction in the money supply) to combat inflation. Explain the total effect of these policies on real gross domestic product, interest rates, employment and inflation.
b. Apply the IS/LM framework to explain the following question. Subsequent to the 2008 “Great Recession,” President Barack Obama used expansionary fiscal policy by increasing government spending. Concurrently, Ben Bernanke, Chairman of the Federal Reserve Board of Governors, applied expansionary monetary policy by increasing the money supply to assist in combating the recession. Explain the total effect of these policies on real gross domestic product, interest rates, employment and inflation.
c. Which monetary and fiscal policy mix do you prefer and why? Explain completely.