During an interview in 2008, the German Finance Minister Peer Steinbrück said, We have to watch out
Question:
a. What would be the appropriate fiscal policy response to this situation if the primary concern of the government was to maintain economic growth? Illustrate the effect of the policy on the equilibrium point and the aggregate price level using the diagram.
b. What would be the appropriate fiscal policy response to this situation if the primary concern of the government was to maintain price stability? Illustrate the effect of the policy on the equilibrium point and the aggregate price level using the diagram.
c. Discuss the effectiveness of the policies in parts a and b in fighting stagflation.
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Related Book For
Macroeconomics
ISBN: 978-1319120054
3rd Canadian edition
Authors: Paul Krugman, Robin Wells, Iris Au, Jack Parkinson
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