[Joseph_E._Stiglitz,_Carl_E._Walsh]_Economics(Bookos.org) (1)

3. Suppose a fall in net exports due to a recession among
our major trading partners causes a recession in the
United States.
(a) If fiscal policy is used to stimulate the economy and
return it to full employment, what happens to the
real interest rate, investment, and future output?
(b) If monetary policy is used to stimulate the economy
and return it to full employment, what happens to
the real interest rate, investment, and future
output?
4. The United States is a major export market for Canadian
goods. Use the ADI and IA framework to illustrate how
Canadian output and inflation will be affected if the Fed
increases interest rates.
5. Suppose the U.S. economy is in a recession. The government
is considering using expansionary fiscal or
monetary policy to help get the economy back to full
employment. Which type of policy will result in a higher
level of net exports?
6. True or false: “A contractionary monetary policy hurts
export industries; a fiscal contraction helps export
industries.” Explain why fiscal and monetary policies
might have different effects on industries that produce
a lot of goods for export.
REVIEW AND PRACTICE ∂ 791