Answer to Question #317260 in Macroeconomics for chin

Question

The two fiscal policies used included lowering of taxes and increased government spending. Lowering taxes ensured that more money remained in the economy to be used in paying of salaries to prevent a high unemployment rate. Increased government spending ensured that the government spent in the economy providing the citizens with funds due to buying and selling.

Lower reserve ratio and buying of securities are some of the monetary policies used. Decreasing the reserve ratio meant that more funds are released into the economy to support the high employment rate by providing funds while buying of securities in form of treasury and bills form the citizens provides more money into the economy. This money then circulates in the economy and is used in paying of salaries and wages to prevent a high unemployment rate. a diagram showing year 2003

Answer 1

a)Monetary policy

The contractionary policy may be used to stabilize the economy, whereby the US government can increase tax rates and decrease its spending to slow economic growth. The contractionary policy can also reduce the amount of money in circulation resulting from the increased money supply. 

b)Fiscal policy

Expansionary policy where the government can decrease consumer taxes and give incentives to increase purchasing power and boost the country's economic growth. The government can also lower the borrowing rates and decrease the bank reserve requirements to uplift money supply, increase consumer living standards and increase employment rates. 

Between 2002 and 2003, the inflation rate increased from 1% to 2.28%. The prices increased by the same rate, and the purchasing power also decreased to 2.28%. The inflation rate of May and June 2003 led to a high unemployment rate of around 6%, and the living standards went down. That is why companies had glory days in 2000 but experienced the worst in 2002 and 2003.