Answer to Question #206958 in Microeconomics for Droke

Question

Two expansionary monetary policy government which can be taken by government? (10 marks)

Two expansionary fiscal policy steps which can be taken by government? (10 marks)

Answer 1

Expansionary monetary policies

Open market operations; this refer to the practice of  buying and selling on the open market in order to manage the amount of money available in banks.

Interest rates; they are largely determined by central banks that actively commit to sustaining a target interest rate. The interest rate is the percentage of the principal that the lender charges for using its finances. It has an impact on the economy since it regulates the money supply.

Expansionary fiscal policies

Tax cuts; this is a reduction in the taxes that a government imposes. A drop in the government's real income and an increase in the real income of those whose tax rates have been lowered are the direct effects of a tax cut.

Increased government spending; this is likely to cause an increase in total demand. In the short run, this could lead to increased growth.