Assume that a country has a growing budget deficit, carries a very large debt, is in a period of high unemployment with interest rates almost at zero, and annual inflation and GDP growth of about 2%.

  • Suggest how fiscal and monetary policy can move those numbers to an acceptable level keeping inflation the same.
  • What is the first action you would take as the president? Why?
  • What is the first action you would take as the chairperson of the Fed? Why?
  • Make sure you include both the positive and negative effects of your actions, and include the trade-offs or opportunity costs.
  • Discuss the dangers of a high debt to GDP ratio and a growing budget deficit and how this affects your policy recommendations.

Your discussion should include the Phillips curve and the multiplier and at least three other of the following concepts:

  • Demand and supply of money
  • Interest rates
  • The Phillips curve
  • Taxation
  • Government spending
  • Wages
  • Costs of inflation
  • The multiplier and the tax multiplier
  • The idea of tax rebates to stimulate the economy

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