1. Which policy decisions will cause the government to operate using a budget deficit?

If government is running a budget deficit they will have to borrow money through the sale of bonds. What will be the resulting impact on interest rates in the economy?

2. Which policy decisions will result in a potential government budget surplus?

If government is experiencing a budget surplus they will not have to borrow money and thus sell fewer bonds. What will be the resulting impact on interest rates in the economy?

3. Explain the impact that monetary policy will have on interest rates in the economy.

4. If you predict interest rates will rise in the economy, what will be the resulting impact on our domestic currency? Will it appreciate or depreciate?

5. If you predict interest rates will fall in the economy, what will be the resulting impact on our domestic currency? Will it appreciate or depreciate?

The President of the United States has asked you to make fiscal and monetary policy recommendations using the options listed below. The objective will always be to return the economy to long run equilibrium with minimal changes to the price level in the economy.

Fiscal Policy Monetary Policy

? Decrease Government Spending ? Increase in Money Supply

? Increase Government Spending ? Decrease in Money Supply

? Decrease in Taxes

? Increase in Taxes