QUESTION 4 (20 MARKS)

1. If the government persistently runs a budget deficit, government debt will rise. If this debt rises faster than GDP, then it will account for a growing proportion of GDP. There is then likely to be an increasing problem of 'servicing' this debt, i.e. paying the interest on it. What effects will government investment expenditure have on general government deficits in the short run and in the long run
2. The Federal Reserve (or 'Fed') is the central bank in the USA, set up in 1913. Although it consists of 12 regional Federal Reserve Banks, it is the Federal Reserve Board in Washington that sets monetary policy and the Federal Open Market Committee (FOMC) that decides how to carry it out. In what ways is the Fed's operation of monetary policy similar to and different from Bank Negara Malaysia?