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1. Draw a production possibilities curve for the United States which is in full employment. The US produces capital goods and consumer goods. a) Draw
1. Draw a production possibilities curve for the United States which is in full employment. The US produces capital goods and consumer goods. a) Draw a possible current point on the graph 2. Draw the current AS-AD model for the US based on the situation described in #1. 3. The US falls into recession due to falling consumer spending. Show the changes on the PPC and AS-AD model. LABEL CLEARLY. 4. Due to the falling consumer spending, show what happens in the money market. a) What happens to the nominal interest rate and the quantity of money? 5. List the 4 tools of monetary policy. a) Who controls these tools? b) Should these tools be used in an expansionary or contractionary way to solve the problem described above? c) When one of the tools is used, show what happens on a new money market graph. d) What happens to the nominal interest rate and quantity of money? 6. Draw a new PPC and AS-AD Model showing what happens when the monetary policy tool is used. (From Question #5) 7. Congress finds out that the Fed has saved the day again. They are disappointed they didn't get to use their tools to fix the recession. What tools could they have used
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