"Policy Improvements" Coursework 9 Example | Topics and Well Written Essays - 250 words

Policy Improvements 9 - Coursework Exampletimulus and increase in aggregate demand stabilizes prices and increase effectiveness of monetary policies through increase demand for labor and government spending, leading to business growth and economic stimulus. It also leads to lower unemployment step and thus an increase in income per capita, which raises living standards. Therefore, the curve emphasizes the tradeoff among unemployment and the inflation order. (Meade, & Thornton, 2011). The curve lot hence be used to figure out the optimal level of unemployment that gives the desired inflation rate.The bearing function can determine the effective and appropriate monetary policy that will lead to the transaction of target economic goals depending on their effect on inflation and output levels. The Function describes the tradeoff between the output gap and the inflation gap and the economys responsiveness to deviations of output levels and the inflation place from their ideals. The weight attached to the inflation rate in the objective function will represent the responsiveness of the economy to the changes in inflation. The function summarizes the total cost to the economy whenever there is an output gap or inflation gap. The output gap occurs whenever the real output of the economy differs from the potential production of the economy piece of music the inflation gap exists whenever there is a deviation of the inflation rate from the ideal inflation rate (Boivin, & Giannoni, 2006). In such situations, the economy bears costs directly and indirectly in the form of underutilization of resources in the theatrical role where the output level is below the potential economy and the usage of resources at an unsustainable rate in the fortune where production is higher than the ideal. When the inflation rate is unexpectedly high, the costs of goods rise resulting in lower consumptions which finally leads to lower output and higher unemployment