Explore BrainMass

Economics: Demand and Supply

This content was STOLEN from BrainMass.com - View the original, and get the already-completed solution here!

Explain the effects of monetary and fiscal policy on economic activity using both IS/LM and AS/AD models. Also explain the difference between the supply side and demand theories.

© BrainMass Inc. brainmass.com October 24, 2018, 11:09 pm ad1c9bdddf

Solution Preview

The response address the queries posted in 857 words with references.
//As per instructions, in this part, we will talk about the consequences of 'Monetary and Fiscal Policy on Economic Activity' using both IS/LM. So, we will discuss about effects under the heading of Introduction, for example: //

Introduction: Effects of monetary and fiscal policy on economic activities using IS/LM model:

Monetary and fiscal policies affect economic activities in different ways. IS/LM and AS/AD models can be used to explain the effects of the policies. The monetary policy has been adjusted, which has caused fall in the interest rate. The rise in the level of income has been caused by the fiscal policy. The conduct and interpretation of stabilization policy has been molded powerfully by the each of the entailments of the IS/LM model (Zwick, 2008).

The implications of IS/LM model show that interest rates are snapback to the initial levels after the decrease or increase in the rates in response to expansionary monetary policy and anterior to a complete alteration of commodity prices. The operations of increase or decrease in income are affected by the fiscal policy. The monetary policy changes the rate of interest speedily and output slowly (Zwick, 2008).

The effects of monetary and fiscal policy:

Shift in IS Shift in LM Movement in Output Movement in Interest Rate

Increase in taxes Left None down down

Decrease in taxes Right None up Up

Increase in spending Right None up Up ...

Solution Summary

The response address the queries posted in 857 words with references.

See Also This Related BrainMass Solution

I need help answering some questions on Fundamentals of economics

I need your HELP answering these questions:

1. Explain how the circular flow diagram illustrates the interaction of households, governments, and business?

2. Illustrate market equilibrium using supply and demand curves?

3. Differentiate between movement along and shift of the demand curve?

4.Explain the relationship between market and aggregate supply and demand?

Can your answers be in paragraphs and can you give me the sources.
Also can you give me the meanings to circular flow diagram, market equilibrium, demand curve and aggregate?

Thank you, your HELP is GREATLY needed and appreciated.

View Full Posting Details