Problem 1. Suppose that the real GDP is below potential GDP. Answer the two questions below.
a. What fiscal policy tools could be used to stimulate the economy?
b. What monetary policy tools can the Federal Reserve use to stimulate the economy and increase economic growth. Please identify at least two specific tools.
Problem 2. What should the Fed do if it wanted to reduce inflation in terms of the money supply?
Problem 3. Both monetary policy and fiscal policy encounter the problems of lags. Discuss the kinds of lags they encounter and the degree of difficulties they present to policymakers.
Problem 4. Discuss and explain the concepts of the federal deficit and the national debt. How statistically significant are they for the United States as compared to other countries? Explain how the deficits and the debt arise.