1. “Either expansionary fiscal policy or a currency depreciation will increase domestic national income by decreasing the level of foreign output demanded.” Comment on this statement.

2. “A perfect-foresight model predicts that expansionary monetary policy has no effect on the level of output.” Comment on this statement with the help of an AD-AS diagram.

3. When the federal government runs a budget surplus rather than a deficit, how will the public’s bond holdings and the supply of money be affected?

4. “The central bank can lower the budget deficit through open market purchases.” Comment on this statement. In your answer discuss whether money financing or debt financing is more inflationary.

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