Reference no: EM131177255

1) What happens if you make a bet and lose but then someone pays you a large amount of the money you lost? Would you take on a riskier bet?

The government bailed out the banks and some big businesses and tried to keep the economy from falling apart by borrowing money and now they face a loss of credit. In fact some countries are facing default. Who bails out the one doing the bailing out?

2) Give an example of an event or incident that has taken place in the U.S. economy which has a major economic impact--be specific, e.g., 9/11 attack, natural disaster, rise or fall in oil prices due to OPEC policies, consumer optimism or pessimism about an expected economic expansion or downturn, increase in government spending on healthcare, tightening of the legal and institutional environment, and so forth. What effect would this event have on AD or AS, other things being constant? What would be the resulting effect on equilibrium price level? Explain. What will be the effect of the different tools of fiscal policy to stabilize the economy? Give an example of a built-in stabilizer and explain how it would work to reduce this rise or fall in the level of AD.