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Simulataneous Fiscal and Monetary Policy

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Suppose the Fed wanted to reduce aggregate demand (to fight inflation) and the president wanted to increase total expenditure (to fight unemployment). What kind of action would each take? NOTE: There are 2 separate entities here with 2 separate goals. You need to tell me what policy would be initiated by EACH entity separately.) What effects would their combined actions have on GDP? What effect would this have on your industry?

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This solution uses economic theory to predict what would happen if the Federal Reserve tried to lower Aggregate Demand while the government was trying to increase total expenditure.

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To decrease aggregate demand, the Fed would decrease the money supply. It could do that by making an open market sale of bonds, by increasing the required reserve ratio, by increasing the discount rate, or by implementing some ...

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