Question 1: In this scenario (Click to select) ( Country B or Country A), is likely to see fiscal stabilization.

Question 2How will monetary policy likely change in the country that will not see stabilization?

• The central bank will decrease interest rates.

• No new government debt will be issued.

• The central bank will keep interest rates stable, but increase the money supply.

• Congress will decrease spending.

Consider the following data for Country A and Country B. Country A Country B Primary Budget 1.1% 3.6% Surplus/GDP Sovereign Debt/ GDP 100% 85% Nominal GDP Growth 2% 4% Rate Nominal Interest Rate 3% 7% on Debt