Answer to Question #263566 in Macroeconomics for Vickie

Question

1)Distinguish between expansionary fiscal policy and expansionary monetary policy

2)Describe the slow model of economic growth by Robert solow 1956 guided by the following subtopics (assumption production capital accumulation population growth and the golden rule)

Answer 1

1)     Tax cuts, transfer payments, refunds, and increased government spending on projects like infrastructure improvements are all examples of expansionary fiscal policy. Expansionary monetary policy is a type of macroeconomic monetary policy that tries to raise the rate of monetary expansion to encourage the growth of a domestic economy. It operates by growing the money supply faster than usual or by decreasing short-term interest rates. Additional money supply is required to promote economic growth. Consumer spending and company capital investments are both boosted as a result of the money inflow.

2)     Robert Solow's renowned "1956" contribution has long been regarded as a cornerstone of positive, or descriptive, economic growth theory. Because the Fisher equation of competitive equilibrium is nothing short of a Euler equation; it relates to the maximization of the sum of discounted consumption flows, it is also at the heart of optimal growth. An ideal savings rate with reasonable, highly achievable values emerges from this equation. This parameter has a value that leads to a permanent growth rate of income per person that is greater than the labor-augmenting rate of technological advancement, and that rate is dependent on the investment—saving ratio. Solow's model is predicated on the following assumptions: There is just one composite commodity produced, production is defined as net output after accounting for capital depreciation, and returns to scale are constant. In other words, the production function is first-degree homogenous. Solow assumed that factor prices were flexible, which might cause problems on the road to stable growth. Due to the problem of liquidity trap, the rate of interest, for example, may be prohibited from falling below a particular minimal level. As a result, the capital-output ratio may not rise to the level required to achieve the path of equilibrium growth. The Solow model is founded on the implausible premise that capital is homogeneous and changeable. Capital products, on the other hand, are highly diverse, posing an aggregation problem. As a result, when capital goods are diverse, it is difficult to achieve a constant growth path.