Fiscal and Monetary Policy
Fiscal and monetary policy shift aggregate demand while waiting for the
economy to adjust is a shift in aggregate supply.
Macroeconomics was created for only two reasons: to measure the overall
economy and to fix it if there is a problem. Now let’s analyze how we can fix
the problem!
If we are at recession they are only three different options that we can use:
1- No policy at all just wait it out
2- Fiscal policy
3- Monetary policy
1. First case if don’t take policy action in recession what’s going to happen to
aggregate supply? So since we have High employment eventually wages are
gone go down, resource prices going down which means costs going down and
aggregate supply shift to the right. This will put us Back up at full
