How does expansionary monetary policy increase spending in the economy compared to how expansionary fiscal policy increases spending in the economy?
What will be an ideal response?
Expansionary monetary policy increases spending by decreasing interest rates which induces households and firms to increase spending on consumer durables and plant and equipment. Expansionary fiscal policy increases spending by directly increasing government spending or by cutting taxes to increase household disposable income which increases consumption spending.
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The European Economic and Monetary Union
A) set up a single currency and sole bank for European economic monetary policy. B) eliminated all barriers to trade such as tax differentials between borders. C) produced a single government for handling European affairs. D) created the Common Agricultural Pact. E) eliminated all local currencies in Western Europe.
An increase in the reserve ratio
A) has an expansionary effect on the money supply. B) has a contractionary effect on the money supply. C) increases the money multiplier. D) will cause banks to make more loans.