Question1. List and describe the two types of countercyclical fiscal policy.

Question2. a. Discuss the advantages of the Fed increasing interest rates when the GDP gap is positive?
b. Discuss the disadvantages of the Fed increasing interest rates when it believes the GDP gap is positive?

Question3. Describe what happens to the price of a bond that pays a fixed percent of the face value every year when interest rates in the economy increase.

Question4. Assume that a stock has a price that gives it the same expected rate of return as a bank account. Explain why this is not an equilibrium situation.