Question

Suppose the economy is in equilibrium in the first period at point (A). In the second period, the economy reaches point (B). We would expect the federal government to pursue what type of policy in order to move AD2 to AD2 policy and reach equilibrium (point C) in the second period?
A. Expansionary monetary policy. B. Contractionary fiscal policy. C. Contractionary monetary policy. D. Expansionary fiscal policy.

Answer 1

Answer:

A. Expansionary monetary policy.

Explanation:

Based on the scenario being described within the question it can be said that the most likely policy to be pursued would be an Expansionary monetary policy. This is when central banks use all of their resources and tools that are at their disposition in order to stimulate the economy to create growth. Which focuses on achieving an equilibrium point.