Purchase Solution

Offsetting fiscal policy with monetary policy

Not what you're looking for?

Ask Custom Question

Consider that the:
The multiplier =3
the money multiplier = 6
income multiplier with respect to the money supply = 4

The government increase spending by 12 billion but because the economy is operating at full capacity it wants to use monetary policy to offset the impact of this increase will have on income.

a) does the central bank need to buy or sell bonds to offset this fiscal policy?
b) how many bonds must the monetary authorities buy or sell to accomplish this end?

Purchase this Solution
Solution Summary

The use of monetary policy when the economy is at full capacity is examined. The expert determines if the central bank needs to buy or sell bonds to offset the fiscal policy.

Solution Preview

a) does the central bank need to buy or sell bonds to offset this fiscal policy?
The money supply needs to be tightened to offset a looser fiscal ...

Purchase this Solution
Free BrainMass Quizzes
Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

View More Free Quizzes
Related BrainMass Solutions

  • Comparing Monetary Policy to a Fiscal Policy

    The evidence examined is suggests that the effectiveness lag of monetary policy is only around two quarters, and is thus fully comparable with that of fiscal policy. This lag of monetary policy might, however, have become longer in the 1980s.

  • Monetary and fiscal policy to stimulate the economy

    650407 Monetary and fiscal policy to stimulate the economy Monetary and fiscal policy (collectively called demand management) can be used to stimulate the economy.

  • Fiscal Policy and Monetary Policy

    180913 Fiscal Policy and Monetary Policy Essay 1.) Describe the process of fiscal policy including alternative types and the ramifications/efficiency of its use. Essay 2.)

  • Fiscal and Monetary Policy

    465694 Fiscal and Monetary Policy Explain the following scenarios. Determine if these represent fiscal policy or monetary policy, or neither fiscal or monetary policy not all government decisions are macro-economic in nature. a.)

  • Fiscal and monetary policy

    393926 Fiscal and monetary policy 1. Explicitly define both fiscal and monetary policy. 2. The following are five current or historical government actions dealing with macro-economic policy.

  • Objectives of Monetary Policy

    What are the major strengths of monetary policy? Promptness Compared with fiscal policy, monetary policy can be implemented promptly while fiscal policy may be delayed by political influences.

  • effects of monetary and fiscal policy

    In order study the Monetary and Fiscal Policy by the IS-LM Model, we will start with the basic model and the shifts with IS-LM curves.

  • Policy Mix in Goods and Money Markets

    Mix: Expansionary monetary policy, no change in fiscal policy. Aggregate output increases, means the policy is expansionary fiscal policy.

  • Contractionary Fiscal and Monetary Policy

    531168 Contractionary Fiscal and Monetary Policy 1. Explain the process of a contractionary monetary policy. Why would the Fed follow a contractionary policy? 2. What are the similarities and differences between fiscal policy and monetary policy?

View More Related Solutions