In 2010, the Greek government had to inform the European Commission of how it would control its budget deficit and improve the performance of its economy. The government's debt was so high that agencies assessing the creditworthiness of the government downgraded it (which would mean more interest had to be paid to raise financing). In other words, the risk premium for Greece had increased. It was expected that the Greek government's proposal to the European Commission would include a 10% cut in government spending.

Q1) Can the government just print money to pay off its debt? Why or why not?

Q3) Assuming that the Greek economy is at the top end of an expansion, what would you expect to be the effect of a contractionary fiscal policy on Inflation? Unemployment? Imports?

Q4) Assuming that the Greek economy is at the bottom of a recession, what would you expect to be the effect of a contractionary fiscal policy on Inflation? Unemployment? Imports?