Answer to Question #60936 in Macroeconomics for Keisha

Question

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%.
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.

Answer 1

If 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%, then the first action you should take as the president is the increase in taxes and decrease of government purchases. The first action you should take as the chairperson of the Fed is the increase of its reserves with the decrease of money supply.