Part 1: Assume that the country is in a period of high unemployment, interest rates are at almost zero, inflation is about 2% per year, and GDP growth is less than 2% per year.

Suggest how fiscal and monetary policy can move those numbers to an acceptable level keeping inflation the same.

What is the first action you would take as the president? As the chairman of the Fed? Why?

What would be your subsequent steps?

Make sure you include both the positive and negative effects of your actions, and include the trade-offs or opportunity costs.

Include the following concepts in your discussion:

Demand and supply of money

Interest rates

The Phillips curve

Taxation

Government spending

Wages

Costs of inflation

The multiplier and the tax multiplier

The idea of tax rebates to stimulate the economy

Part 2: Assume that the country is in a budget deficit and carrying a very large debt. Discuss the dangers of a high debt to GDP ratio and a growing budget deficit. Would this affect any policy changes you discussed in Part 1?

Answer rating: 100% (QA)

PART 1 Maintaining a low level of unemployment as well as a low inflation rate are part of the dual mandate of the FED The possibility of having low inflation and low unemployment is given by the Phil... View the full answer