1. Assume the economy is suffering from high unemployment due to decreases in aggregate
demand and you are the Chairman of the Fed. What monetary policy/ tool would you
employ and then using the cause-effect chain, explain the effect it would have on the
2. What is the multiplier effect as it relates to money creation? What determines the size of
the potential money multiplier? What is the difference between the potential and real
3. Assume the economy is suffering from massive inflation and you are the Chairperson of
the FED. What monetary policy/tool would you employ and then using the cause-effect
chain, explain the effect it would have on the economy.?
4. The European Union (EU) has a provision in what is called the Stability and Growth Pact
that limits annual budget deficits to 3 percent of GDP and its net public debt to no more
than 60 percent of its GDP. Suppose that a country finds that it has a budget deficit
is currently 3 percent of GDP and/or a level of net public debt equal to 60 percent of
GDP. Could that country use countercyclical fiscal policy to stabilize its economy at all?
5. Explain at least two ways how deficit spending could be a burden to future generations.
Running Head: ECONOMY AND UNEMPLOYMENT Economy and Unemployment
Institution ECONOMY ANDEMPLOYMENT 2 When in a country there is increased unemployment the economy will suffer since...
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