1. Assume that the economy is near full employment. Explain and graph, that explains why the expansionary fiscal policy will have little effect on output.
2. Define crowding out, and explain why crowding out disappears if the economy is extremely weak.
3. Assume that the economy has begun to boom, and there is some fear that inflation is just around the corner. Could we count on the Fed to have the policy effectiveness to slow down the economy and keep inflation at bay?
4. Assume that we have fallen into a relatively deep recession. Can we count on monetary policy alone to end this recession? Why or why not?
5. Assume that the government has initiated an expansionary fiscal policy and that instead of the fiscal multiplier being 4, its theoretical size, it is only 1.5, signaling crowding out. Can the Fed use monetary policy to offset the crowding out? Explain and show graphically.
6. Assume that current Y is lower than Y_N, and you have been given the job of devising a policy to end the recession. Please develop a policy that will end the recession while minimizing the negative effects of interest rate changes on the housing market.