1.

(a)What are the potential problems with counter cyclical fiscal policy?

(b)"A balanced budget fiscal policy is pro-cyclical". Explain with economic

reasoning and appropriate diagram(s).

(c)"A fiscal policy of changing both the government spending and taxes by

the same amount is not neutral". Explain with a numerical example.

2.

(a)Discuss the important functions and characteristics of Money? Why is a

barter economy inefficient?

(b)Discuss four factors that may reduce the size of the money multiplier in an economy.

(c)Discuss and distinguish Keynesian views and Monetarists' views on the effects

of money supply in an economy. Draw diagrams.