Part 1 - Check Your Understanding - For each of the policy combinations below, identify if the aggregate demand, real output, and price level will increase, decrease, or be indeterminate. Policy Combination Aggregate Real Price Demand Output Level Decrease in personal income taxes and 1 . increase decrease decrease decrease in the discount rate 2. Decrease in government spending and decrease decrease decrease purchase of bonds by the central government 3. Decrease in the reserve requirement and decrease increase no change increase in taxes 4 . Central bank sells treasuries and decrease in increase increase increase government spending Part 2 - Draw It - For each of the following scenarios, show the short-run effect of the policy on a correctly labeled AS/AD graph and money market graph. 5. The economy is at full employment and the government cuts taxes while the central bank lowers the federal funds rate. X X 6. The economy has a positive output gap and the government decreases spending while the central bank increases the discount rate. Video Help: https://youtu.be/bv-uNNkE391 @Copyright Jacob Clifford 2020. www.ACDCecon.com Annual license required. Do not use unless you have purchased a license