1. The economy of a hypothetical country has been stable for two or three years with very low unemployment. Wages have been gradually increasing during this time. Now stock market prices begin significant increases, causing peoples' investments, such as their retirement accounts and other investments, to increase in value. People feel very good about the future and use their new-found wealth to buy things that they had been hesitant to purchase in the past. Include detailed answers to the following questions in your essay:

a. What kind of economic gap will start to occur (inflationary or recessionary)?

b. What kind of fiscal policy might be helpful to stabilize the economy (expansionary or contractionary)?

c. What specific fiscal policy tools does the government have available, and how should these tools be utilized to maximize their effect in stabilizing the economy?

d. What would be the likely impact on the government budget and national debt of the use of these fiscal policy tools?

e. How would the use of these fiscal policy tools stabilize the economy?

3. Assume that in a hypothetical country, coal mining is a significant industry, hiring a high proportion of that country's workforce. Describe, in a short essay inserted below this question, how a significant decline in coal mining, as the country attempts to switch to environmentally safer production, can ripple through the entire economy, and how the government can use fiscal policy tools to combat such negative effects.