ECO 201 online
Problem Set 4
Answer each of the following questions. Answers must be submitted in a PDF or Word document to the assignment box in D2L by the due date. Graphs must be your own. Any graphs may be hand drawn or created by you. No credit will be given for graphs created by someone else. Provide any formulas used. Answers must be typed.
Assume an economy is experiencing a recessionary expenditures gap.
What fiscal policy action(s) could potentially close the gap? Be specific and explain its impact in the AD-AS model.
What monetary policy action(s) could potentially close the gap? Be specific and explain its impact in the AD-AS model.
Would you recommend any of the above actions? Why or why not?
Assume an economy is experiencing an inflationary expenditures gap.
What fiscal policy action(s) could potentially close the gap? Be specific and explain its impact in the AD-AS model.
What monetary policy action(s) could potentially close the gap? Be specific and explain its impact in the AD-AS model.
Would you recommend any of the above actions? Why or why not?
Assume the Federal Reserve buys $10 million in bonds. Assume the reserve requirement is 5% and banks hold no excess reserves. How much money will be created or destroyed due to this action by the Fed? What impact should this have on interest rates and Aggregate Demand?
Assume the Federal Reserve sells $10 million in bonds. Assume the reserve requirement is 5% and banks hold no excess reserves. How much money will be created or destroyed due to this action by the Fed? What impact should this have on interest rates and Aggregate Demand?