1. Let us assume that the economy experiences a high inflation rate and severe tightness in the labor market. Given the observed small value of |l`|, what type of policy (monetary, fiscal, ...) would you recommend. Make sure to supplement your answer with the relevant graphical, mathematical, and economics presentation.
2. What is the difference between the Balance Sheet channel and the bank lending channel?
3. Ignoring the spillover effect between the signaling channel and balance portfolio channel will downwardly bias the signaling channel's importance. Discuss!
4. Assume the following equations summarize the structure of an economy.

C= C_a + 0.7(Y - T)

C_a = 2,000 - 25r

T= 200 + 0.2Y

(M/P)^d = 0.3Y - 15r

M^S/P = 3,000

I_p = 3,500 - 20r+ .1y

G= 4,000 - .2y -15r

NX = 1,500 - 0.2Y

In response to the current budget deficit, the government cuts its expenditure by 100 billion dollars. How can the fed offset the decline in the real equilibrium output?

Make sure to support your answer with the relevant graph and the Fed's detailed policy.