Some Economists Argue That Policymakers Can Use Monetary and Fiscal

question 139

Essay

Some economists argue that policymakers can use monetary and fiscal policy to reduce the severity of economic fluctuations. What are some things policymakers can do to boost the economy when aggregate demand is inadequate to ensure full employment?

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Definitions:

MB = MC Rule

The principle that firms maximize profit by producing where marginal benefit (MB) equals marginal cost (MC), determining the optimal level of output.

Loanable Funds Theory

An economic theory that describes the market for borrowing and lending, where interest rates are determined by the supply of and demand for loanable funds.

Nominal Rate of Interest

The nominal interest rate on a loan or investment, before adjusting for inflation.

Real Rate of Interest

The real rate of interest is the rate of interest an investor expects to receive after allowing for inflation, reflecting the true earning potential of an investment.