1. Calculate the macroeconomic consequences of a budget deficit when the economy is operating at full employment? Be sure to describe the effects in the short run and long run.
2. Assume that the Fed purchases $1 million in bonds in the open market. Discuss how the money supply can increase by more than $1million.
3. What happens to the interest rate? What happens to the money supply? What happens to the price of bonds when the Fed sells bonds?