Question

starting with medium run equilibrium , an economy forces a permanent decline in the oil prices . The goverment uses monetary policy to keep output at the orignal level in the short run and does not change nominal money supply thereafter. using AS AD curve show the impact on output and prices in the short run and medium run?​

Answer 1

Answer:

The Medium Run: the period of about 12 years during which the capital stock adjusts gradually to bring the economy to long-run equilibrium. The Long Run: what the economy looks like after investment, prices and wages, and capital have all adjusted.

Answer 2

Answer:

Fiscal policy is defined as the government’s measures to guide and control spending and taxation. The traditional view is that fiscal policy performs three main functions: allocation, distribution, and stabilization. The allocation function is the process of dividing total resource use between private and social goods and choosing the mix of social goods. The distribution function is the process of adjusting the distribution of income or wealth to ensure conformance with what society considers fair. The stabilization function supports achieving the main macroeconomic objectives set by policymakers to ensure economic growth, price stability, and sustainable external accounts.

This chapter concerns itself essentially with the stabilization function of fiscal policy.1 It begins by using the traditional IS-LM aggregate supply/aggregate demand model to assess the short-run effects of fiscal policy on output, prices, and the current account of the balance of payments and to explore the interactions between fiscal policy and monetary and exchange rate policies. It then addresses issues specific to fiscal policy and macroeconomic management, including methods for measuring the fiscal balance, cyclical and structural deficits, the sustainability of the fiscal deficit, and policies for managing debt and fiscal surpluses. It concludes by exploring how the three primary instruments of fiscal policy—tax policy, expenditure policy, and overall budgetary policy—can affect a country’s long-term growth.

Explanation: