Hi, I completed all of the questions for this assignment, and just wanted a tutor to review it. Please let me know if I need to change anything or add any explanations.

Word File Edit View Insert Format Tools Table Window Help Q 8 * Thu Oct 7 7:30 PM . . . AutoSave . OFF A 9 068 ... Economics Module 4 Homework - Saved to my Mac Home Insert Draw Design Layout References Mailings Review View Tell me Share Comments R Times New... v 12 A" A" Aa Ap AaBbCcDdEe AaBbCcDdEe AaBbCcDc AaBbCcDdEE AaBb( Paste BI Uvab X x A DAY Normal No Spacing Heading 1 Heading 2 Title Styles Dictate Pane producing below its potential GDP to expand aggregate demand so that it produces closer to potential GDP, thus lowering unemployment. However, it cannot help an economy produce at an output level above potential GDP without causing inflation, therefore causing unemployment to become so low that workers become scarce and wages rise rapidly. 5) Contrast government debt with budget deficit or surplus. A budget deficit is when the federal government spends more money than it receives in taxes in a given year. While a budget surplus is when the government receives more money in taxes than it spends in a year. Additionally, the government deficit or surplus refers to what happens with the federal government budget each year. In contrast, the government debt is accumulated over time, it is the sum of all past deficits and surpluses. When the economy is weak, people's incomes tend to decline, leading to the government collecting less in tax revenues and spending more for safety net programs such as unemployment insurance. This leads to the deficit growing while the surplus shrinks during recessions and vice versa. Budget deficits are then covered by selling securities (Treasury bonds, notes, and bills), essentially borrowing from the public and promising to repay with interest in the future. When the government runs a deficit, it increases the national debt. However, when the government runs a surplus, the debt decreases. 6) Briefly discuss the macroeconomic benefits of a highly educated and skilled work force and then explain how government could do more to encourage increased R&D activities. A highly educated and skilled workforce contributes to a higher rate of economic growth. For the low-income nations of the world, additional investment in human capital seems likely to increase productivity and growth. The government could spend more on the R&D that it carries out in government laboratories, as well as expanding federal R&D grants to 2 universities and colleges, nonprofit organizations, and the private sector. Page 2 of 3 912 words English (United States) Focus E 166% O 16,392 1 18 7 tv A W WWord File Edit View Insert Format Tools Table Window Help Q 8 * Thu Oct 7 7:30 PM . . . AutoSave . OFF A ? C68 ... Economics Module 4 Homework - Saved to my Mac Home Insert Draw Design Layout References Mailings Review View ? Tell me Share Comments R Times New... v 12 A" A Aav AaBbCcDdEe AaBbCcDdEe AaBbCcDc AaBbCcDdEE AaBb( , Paste BIUvab x x ADA. Normal No Spacing Heading 1 Heading 2 Title Styles Dictate Pane 1) Stealth Bank is holding $4 million in reserves, $9 million in government bonds and $9.6 million in low risk mortgage loans. Out of the $20 million in customers' deposits, Stealth holds $13.1 million in the form of certificates of deposit. Describe the formula for determining Stealth Bank's net worth and, using the figures above, determine the Bank's net worth. Identify the criteria for classifying a bank as healthy or unhealthy and determine which applies to Stealth Bank in these circumstances. To find the bank's net worth you would simply, subtract the liabilities from the assets. Also, if a bank's net worth is positive it's a healthy business, however, if it has a negative net worth it's a bankrupt firm or is insolvent. If a bank's net worth is negative it is insolvent because it doesn't have enough assets to pay back its liabilities. The bank's net worth is 2.6 million dollars. Breakdown: (assets) 4 million + 9 million + 9.6 million= 22.6 million- (liabilities) $20 million dollars = 2.6 million dollars (Net worth). Therefore, Stealth is a healthy bank because it's net worth is positive. 2) Define and contrast contractionary monetary policy and expansionary monetary policy and their respective economic outcomes. Explain what happens if the affects of either of these policies goes too far. Expansionary monetary policy lowers interest rates and stimulates borrowing and increases business investments and consumer borrowing for big-ticket items. Whereas contractionary monetary policy raises interest rates and reduces borrowing in the economy, and specifically causes a decline in business investment and consumer borrowing for big-ticket items like houses and cars. If expansionary monetary policy goes too far, it could push aggregate demand so far to the right that it triggers inflation. Additionally, if contractionary monetary policy goes too far, it may push aggregate demand so far to the left that a recession begins. 2 3) Discuss the method of quantitative easing used by the Federal Reserve during the most recent U.S. recession, including any criticisms of this action. Quantitative easing is the purchase of Page 1 of 3 912 words English (United States) Focus E 166% O 16,392 1 OCT 7 "tv A S W WWord File Edit View Insert Format Tools Table Window Help Q 8 * Thu Oct 7 7:30 PM . . . AutoSave . OFF A ? C68 ... Economics Module 4 Homework - Saved to my Mac Home Insert Draw Design Layout References Mailings Review View ? Tell me Share Comments R Times New... v 12 A" A Aa Ap AaBbCcDdEe AaBbCcDdEe AaBbCcDc AaBbCcDdE AaBb( , Paste BIUvab X x A DAY Normal No Spacing Heading 1 Heading 2 Title Styles Dictate Pane 3) Discuss the method of quantitative easing used by the Federal Reserve during the most recent U.S. recession, including any criticisms of this action. Quantitative easing is the purchase of long-term government and private mortgage-backed securities by central banks to make credit available so as to stimulate aggregate demand. It involved the Fed purchasing long term Treasury bonds, rather than short term Treasury bills. Also, instead of purchasing Treasury securities, the Fed also began purchasing private mortgage-backed securities which had never been done before. By doing so the Fed was both pushing long term interest rates down and also removing possibly "toxic assets" from the balance sheets of private financial firms, which would strengthen the financial system. The criticism of this action is that quantitative easing may prove more difficult to reverse than it was to enact. 4) Identify and briefly describe some practical difficulties of discretionary fiscal policy. Some practical difficulties of discretionary fiscal policy are interest rate effects, time lags, temporary and permanent policies, and unpredictable political behavior. Which is why discretionary fiscal policy is used in extreme economic situations, like and especially deep or long recession. For example, a problem of discretionary fiscal policy arises out of the difficulties of explaining to politicians how countercyclical fiscal policy that runs against the tide of the business cycle should work. Furthermore, some politicians' trim expenses and pinch pennies when the economy and tax revenues slow down. Countercyclical policy, however, says that when the economy has slowed, it's time for the government to stimulate the economy, by raising spending, and cutting taxes. This offsets the drop in the economy in other sectors. Moreover, discretionary fiscal policy can help an economy that is 2 Page 1 of 3 912 words English (United States) Focus E 166% O 16,392 1 18 City A W W