Reference no: EM132601038

The United States economy is currently operating above the full employment level of GDP.

1. Draw a correctly labeled AD/AS graph for this economy showing equilibrium output and price level.
2. Identify an open market operation that the Federal Reserve could enact that will solve the problem.
3. Show and Explain how the policy you identified in (B) will affect each of the following in the short-run.
4. output and employment
5. price level
6. nominal interest rates
7. If the interest rates you identified in (C) continued, explain what will happen to the following:
8. U.S. financial assets
9. International value of the dollar

MUST INCLUDE GRAPH

Given an economy where government is deficit spending while operating at full employment.

1. Using a correctly labeled graph for real interest rates, explain how the increase in the deficit will affect real interest rates in the short run, ceteris paribus.
2. Explain the difference between government deficit and national debt by defining each concept.
3. Explain how private investment will be impacted by the government's deficit spending.
4. If the government continues deficit spending, show the impact on a correctly labeled short-run Phillips Curve. Label the initial position A and the new position B.