Answer to Question #96944 in Macroeconomics for Tiffany

Question

A. Show what will happen if the government uses some fiscal policy to respond to the high unemployment rate but, due to the lags, does so only after the economy has returned to long-run equilibrium on its own. Be sure to show both the short-run and long-run effects of the fiscal policy. (3 points)

Answer 1

Fiscal policy is used by the by the government to influence the country’s economy through taxation and spending. Its objective is to bridge recessionary gaps decrease unemployment rates, and to stimulate the economy. The short run effect of facial policy is to modify demand for products and services. Output returns to the natural state in the long-run. Facial policy leads to high output in the short-run, but it lowers the equilibrium rate of output in future.