1-How might an increase in stock prices lead to increases in investment?
2-How and why does the stock market and housing market affect consumption?
3-What might have happened had the U.S. financial system not been “bailed out” by the federal government?
4-When is the Fed more likely to increase the money supply and why?
5-Suppose that there is a stock market crash in which the market loses twenty percent of its value in one day. Furthermore, assume that the crash leads to further pessimism that the market will crash again. What likely impact will this have on GDP and why?
6-Explain why stagflation is a more difficult problem to solve for the Fed than others.
7-What kind of impact on the economy will there be from a contractionary monetary policy when the economy is suffering from stagflation?
8-What is a response lag?
9-What happens to the deficit, when government spending is increased?
10-Explain the “balanced-budget amendment.” Why are many economists who favor deficit reduction opposed to the balanced-budget amendment? Describe a condition in which a mandated balanced budget would be harmful to the nation’s economic health.
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