9) Two neighboring countries - Tweedledee and Tweedledum - are experiencing high inflation, and they have different monetary and fiscal policy responses. a) Tweedledee's government is increasing government spending, while Tweedledums's Central Bank is increasing the federal funds rate. Explain which of the two policies may help stem inflation. b) How will Fiscal policy affect the labor market in Tweedledee if wages are downwardly rigid? Explain with a diagram. c) What do you expect will happen to the unemployment rate in Tweedledum given their monetary policy if wages are downwardly rigid? Explain with a diagram. d) What will be the impact on the labor market and inflation if the Tweedledum government increases spending there as well? e) Of these groups in Tweedledee, which would be happy or sad with the government policy? 1) ex-government employees who are retired and receive a pension, 2) students who have taken out loans for college from the government, 3) bank owners in Tweedledee. Why?

Exploring Economics
8th Edition
ISBN:9781544336329
Author:Robert L. Sexton
Publisher:Robert L. Sexton
Chapter27: Issues In Macroeconomic Theory And Policy
Section: Chapter Questions
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9) Two neighboring countries - Tweedledee and Tweedledum - are experiencing high inflation,
and they have different monetary and fiscal policy responses.
a) Tweedledee's government is increasing government spending, while Tweedledums's Central
Bank is increasing the federal funds rate. Explain which of the two policies may help stem
inflation.
b) How will Fiscal policy affect the labor market in Tweedledee if wages are downwardly
rigid? Explain with a diagram.
c) What do you expect will happen to the unemployment rate in Tweedledum given their
monetary policy if wages are downwardly rigid? Explain with a diagram.
d) What will be the impact on the labor market and inflation if the Tweedledum government
increases spending there as well?
e) Of these groups in Tweedledee, which would be happy or sad with the government policy?
1) ex-government employees who are retired and receive a pension, 2) students who have
taken out loans for college from the government, 3) bank owners in Tweedledee. Why?
Transcribed Image Text:9) Two neighboring countries - Tweedledee and Tweedledum - are experiencing high inflation, and they have different monetary and fiscal policy responses. a) Tweedledee's government is increasing government spending, while Tweedledums's Central Bank is increasing the federal funds rate. Explain which of the two policies may help stem inflation. b) How will Fiscal policy affect the labor market in Tweedledee if wages are downwardly rigid? Explain with a diagram. c) What do you expect will happen to the unemployment rate in Tweedledum given their monetary policy if wages are downwardly rigid? Explain with a diagram. d) What will be the impact on the labor market and inflation if the Tweedledum government increases spending there as well? e) Of these groups in Tweedledee, which would be happy or sad with the government policy? 1) ex-government employees who are retired and receive a pension, 2) students who have taken out loans for college from the government, 3) bank owners in Tweedledee. Why?
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