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Effects of monetary and fiscal policy on inflation

1.If the market price is less than the equilibrium price, what is the relationship of quantity supplied to quantity demanded? What will happen to the price?

2. If the market price is greater than the equilibrium price, what will be created in the market, and what will happen to the price?

3. What is the final impact of contractionary fiscal policy on the price-level and real output?

4. What is the final impact of expansionary fiscal policy on the price-level and real output?

5.What are the impacts of a tight monetary policy on the price-level and real output? When would a tight monetary policy be appropriate?

6. What are the impacts of an easy monetary policy on the price-level and real output? When would an easy monetary policy be appropriate?

Solution Preview

1.If the market price is less than the equilibrium price, buyers will want to purchase more of the good than suppliers are willing to produce. There will be a shortage, and buyers will begin to bid against each other in order to obtain the good. The price will eventually rise to the equilibrium price.

2. If the market price is greater than the equilibrium price, a surplus ...

Solution Summary

Market equilibrium, impact of fiscal and monetary policy

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