Author Question: A nave implication of the DD-AA framework is that either fiscal or monetary policy can lead to full ... (Read 38 times)

rachel9 · **on:** Jun 30, 2018

A nave implication of the DD-AA framework is that either fiscal or monetary policy can lead to full employment. Discuss why this view is nave.

What will be an ideal response?

Question 2

We can expect very small deviations from interest rate parity in

A) the domestic markets.
B) the Eurocurrency market.
C) the goods market.
D) All of the above.

hollysheppard095 · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

(1 ) Inflation may arise without any gain in output if the government misuses its power to print money.
(2 ) In practice, it is sometimes hard to be sure whether a disturbance to the economy originates in the output or assets markets.
(3 ) Shifts in fiscal policy often can be made only after lengthy legislative deliberations. Governments are likely to respond to disturbances by changing the monetary policy even when a shift in fiscal policy would be more appropriate.
(4 ) Fiscal policy impacts the government budget and may lead to government budget deficit that must be sooner or later be closed by a fiscal reversal. The state of the electoral cycle may be more important.
(5 ) Policies operate in reality with lags of varying length.

Answer to Question 2

B