C) consumer nondurables. Fiscal and Monetary Policy Fiscal Policy Fiscal policy is carried out by the legislative and/or the executive branches of government. According to monetarists, an expansionary fiscal policy. On the other hand, given IS 0 curve, an expansionary policy will shift LM 0 to LM 1. The latter could be due either to a deliberately chosen mix of fiscal and monetary policies or to a passive adjustment of money supply to â¦ C. should be used only when unemployment exceeds 6 percent of the labor force. Fiscal policy, measures employed by governments to stabilize the economy, specifically by manipulating the levels and allocations of taxes and government expenditures. According to monetarists, an expansionary fiscal policy: A) will be ineffective because the interest rate will rise and crowd out private investment spending. Multiple Choice. 2. Monetarists make a clear distinction between pure fiscal policy where fiscal policy operates with no change in the money supply and a fiscal policy operating alongside a change in money supply. eBook 0 an expansionary fiscal policy will lower interest rates and overstimulate the economy. B. will be ineffective because the interest rate will rise and crowd out private investment spending. a.should be used only when unemployment exceeds 6 percent of the labor force. A) business fixed investment. D) will be effective, provided â¦ The short-run aggregate supply curve began shifting to the left, but expansionary policy continued to shift aggregate demand â¦ B) government expenditure. A loose or expansionary fiscal policy is just the opposite and is used to encourage economic growth. According to monetarists, an expansionary fiscal policy:? 106. This will reduce the rate of interest from Oi 0 to Oi 2, encourage investment and thus increase income level from OY 0 to OY 1. According to monetarists, Multiple Choice ( 8 01:37:59 0 changes in the money supply are the primary cause of changes in the price level. Expansionary fiscal and monetary policy early in the 1960s (Panel [a]) closed a recessionary gap, but continued expansionary policy created an inflationary gap by the end of the decade (Panel [b]). According to the traditional interest-rate channel, expansionary monetary policy lowers the real interest rate, thereby raising expenditure on. C) should be used only when unemployment exceeds 6 percent of the labor force. Learn more about fiscal policy in this article. A. should not be permitted so long as a public debt exists. Fiscal measures are frequently used in tandem with monetary policy to achieve certain goals. Answer to: According to monetarists, an expansionary fiscal policy: a. Eventually, its budget deficit will become too large, driving up its debt to an unsustainable level. B) should not be permitted so long as a public debt exists. D) net exports. The government collects taxes in order to finance expenditures on a number of public goods and services â¦ c.will be ineffective because the interest rate will rise and crowd out private investment spending. Many fiscal policy tools are based on Keynesian economics and hope to boost aggregate demand . Thus according to monetarists, fiscal policy is ineffective and monetary policy is effective in influencing the income â¦ According to the rational expectations hypothesis, a government attempt to trade higher inflation for lower unemployment MOST likely will ... Monetarists believe that government spending with a constant money supply will cause interest rates to _____ and investment spending to _____. ... expansionary fiscal policy had the capability â¦ The two main instruments of fiscal policy are government expenditures and taxes. 0 changes in the velocity of money are more important than changes in the money supply in â¦ An expansionary fiscal policy is a powerful tool, but a country can't maintain it indefinitely. b.should not be permitted so long as a public debt exists.