Assume that a country has a growing budget deficit, carries a very large debt, is in a period of high unemployment with interest rates almost at zero, and annual inflation and GDP growth of about 2%.
- 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? Why?
- What is the first action you would take as the chairperson of the Fed? Why?
- Make sure you include both the positive and negative effects of your actions, and include the trade-offs or opportunity costs.
- Discuss the dangers of a high debt to GDP ratio and a growing budget deficit and how this affects your policy recommendations.
Your discussion should include the Phillips curve and the multiplier and at least three other of the following concepts:
- 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