1. Fiscal Policy
1. Assume the economy is in a stagflation where YP*. Demonstrate this graphically and explain.
2. How would an increase in taxes on businesses impact this economic condition? Is this the proper policy? Demonstrate and explain the effects of this policy on the economy. Does this make the economy stronger or weaker, explain?
3. Assume the US Government, wants to use expansionary policy by decreasing taxes for consumers. Demonstrate and explain the effects of this policy on the economy. Does this make the economy stronger or weaker, explain?
4. What alternative policy should the government us to achieve full employment level of output with optimal price level. Demonstrate and explain the effects of this policy on the economy. Does this make the economy stronger or weaker, explain?

Monetary Policy

1. Assume the economy is inflationary where Y>Y* and P>P* demonstrate the state of the economy graphically and explain.
2. What policy should the Federal Reserve use? Assume the Federal Reserve will use buying or selling of bonds as their tool for this policy Fully demonstrate and explain the link between buying and selling bonds and the AD/AS model.
3. Assume the US Government, given that the economy is doing well, decides to increase government spending. Demonstrate and explain the effects of their decision on the economy.
4. Contrast and Compare Monetary policy from B with Fiscal Policy in C. What economic challenges are a result of part b and part c.