Apply the IS/LM graphical framework to explain the following question (show using the IS/LM graphs). Congress has just passed President Biden’s expansionary fiscal policy by 1.2 trillion dollar infrastructure bill. The Democratic Congress and President Biden hope to pass an additional fiscal policy bill entitled Build Back Better for just shy of 2.0 trillion dollars (there are estimates this bill will cost upward to 4.0 trillion dollars). Additionally, the Federal Reserve, under the leadership of Jerome Powell, is beginning a monetary policy to fight inflation by decreasing the growth rate of the moneys supply. The money supply will increase but at a slower rate. Using the IS/LM graphical model explain the total effect of these policies on real gross domestic product, interest rates, employment and inflation.

As an historical note President Trump nominated and the Senate confirmed Jerome Powell to replace Janet Yellen as Chairperson of the Federal Reserve System on February 5, 2018. President Obama nominated and the Senate confirmed Janet Yellen to replace Ben Bernanke as Chairperson of the Federal Reserve Board on February 3, 2014. Ben Bernanke was first nominated by President Bush (the younger) in 2006. Bernanke was reappointed by President Obama in 2010. Allan Greenspan was nominated by President Reagan and confirmed by the Senate on August 11th, 1997 and served till January 31st, 2006. President Carter nominated Paul Volcker to be Chairman of the Federal Reserve System in 1978. He replaced Arthur Burns who was appointed by President Richard Nixon in 1970.

Answer rating: 100% (QA)

Expansionary fiscal policy increases investment and consumption which shifts IS curve rightwa... View the full answer