Symbols: = Up = Down — = No effect ? = Uncertain Use the above symbols to fill i

Question

Symbols:         = Up             = Down        — = No effect             ? = Uncertain

Use the above symbols to fill in the table below:

a)

Observations

Effect on

Ms

Md

r

I

Y

C

The Fed decreases discount rate

The government implements stimulus package

Net effects

b) What if the Fed buys government securities and the government increases spending at the same time? Show your reasoning. You can use the table below:

Observations

Effect on

Ms

Md

r

I

Y

C

The Fed buys government securities

The government increases spending

Net effects

Observations

Effect on

Ms

Md

r

I

Y

C

The Fed decreases discount rate

The government implements stimulus package

Net effects

Explanation / Answer

Observations

Effect on

Ms

Md

r

I

Y

C

The Fed decreases discount rate

  

   

    

   

  

   

The government implements stimulus package

    —

   

  

   

  

  

Net effects

  

  

?

?

  

Observations

Effect on

Ms

Md

r

I

Y

C

The Fed buys government securities

    

  

   

  

The government increases spending

  —

   

    

  

   

  

Net effects

?

?

  

  

Observations

Effect on

Ms

Md

r

I

Y

C

The Fed decreases discount rate

  

   

    

   

  

   

The government implements stimulus package

    —

   

  

   

  

  

Net effects

  

  

?

?

  

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