1. Assume the economy is suffering from high unemployment due to decreases in aggregate demand and you are the Chairman of the Fed. What monetary policy/ tool would you employ and then using the cause-effect chain, explain the effect it would have on the economy.
2. What is the multiplier effect as it relates to money creation? What determines the size of the potential money multiplier? What is the difference between the potential and real multiplier?
3. Assume the economy is suffering from massive inflation and you are the Chairperson of the FED. What monetary policy/tool would you employ and then using the cause-effect chain, explain the effect it would have on the economy.
4. The European Union (EU) has a provision in what is called the Stability and Growth Pact that limits annual budget deficits to 3 percent of GDP and its net public debt to no more than 60 percent of its GDP. Suppose that a country finds that it has a budget deficit is currently 3 percent of GDP and/or a level of net public debt equal to 60 percent of GDP. Could that country use countercyclical fiscal policy to stabilize its economy at all?
5. Explain at least two ways how deficit spending could be a burden to future generations.