Share
Explore BrainMass

expansionary monetary policy and contractionary monetary policy

Explain the difference between expansionary monetary policy and contractionary monetary policy.

also,

Suppose when income is $10,000, aggregate expenditures are also $10,000. If income were hypothetically $0, aggregate expenditures would be $2,500.

a. At an income of $10,000, what are induced expenditures?
b. At an income of $10,000, what are autonomous expenditures?
c. What is the marginal propensity to expend?
d. What is the multiplier?

Solution Preview

Expansionary monetary policy is any monetary policy that induces firms, and households to increase their spending. This is usually accomplished through lower interest rates and higher money supply. Lower interest rates increases consumer spending and more importantly increases investment thus expanding the GDP.

Contractionary monetary policy does the exact opposite in trying to cut down spending by firms and households. This is usually accomplished through higher interest rates and lower money supply. It is usually adopted when there is an inflationary pressure on the economy.

At income of $10000, aggregate ...

Solution Summary

The difference between expansionary monetary policy and contractionary monetary policy is posed.

$2.19