MGEA06H3 Study Guide - Final Guide: Fiscal Policy, Liquidity Trap, Feyenoord

• School: UTSC
• Department: Economics for Management Studies
• Course: MGEA06H3
• Professor: Iris Au

Document Summary

Comparison between monetary policy and fiscal policy how fiscal and monetary policies affect. Includes increases in g or tr, or decreases in t. End result: ae and ad increases => y increases: expansionary monetary policy open market purchase. Central bank buys bonds => ms increases. End result: r deceases => i increases => ae and ad increases => y increases. Note regarding monetary policy: how much ms would increases depends on the loan creation process of commercial banks. Rr is high, then 1/rr will be low, thus the change in ms will be low. Since y* < yfe, in the lr, there will be pressure for wages to drop => production cost decreases. As curve shifts to the right until yfe => p decreases, y increases to yfe: option 2: use expansionary fiscal or monetary policy. Ms, g, tr increases, or t decreases.