Monetary and Fiscal Policy and Policy Debate
1. Suppose you read in the newspaper that last week the Fed
conducted open market purchases, and that on Tuesday of last week it lowered
the discount rate. What would you say the Fed was up to? Describe the most
likely economic condition of the economy.
2. What three tools can the Fed can use to change the money
supply? Which tool is used most frequently? What are two limitations on the
money expansion process?
3. Explain why incorporating money into our macroeconomic
framework moderates the effects of fiscal policy. That is, how does the
existence of the supply and demand for money moderate the effects of increased
government spending?
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