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For each of the following, first indicate whether this is a change to fiscal or monetary policy; then explain in words and show using the

  1. For each of the following, first indicate whether this is a change to fiscal or monetary policy; then explain in words and show using the 45 degree line diagram how this change will affect Keynesian equilibrium output. Does the expenditure schedule experience a rotation or a parallel shift? If the latter, what components of autonomous expenditure change and why? Also, explain in one sentence why the government or Fed would undertake such a policy.

(a) The government increases transfer payments

(b) The government increases the income tax rate

(c) The Federal Reserve increases the federal funds rate from 0 percent to 2 percent

(d) The Federal Reserve buys long term bonds, reducing long-term interest rates (this is an example of quantitative easing)

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