Economic Policies and Practices

The policies of the federal government influence the outcomes of the various activities in that economy. When government policies change or unplanned events occur, the resulting economic events or activity will usually change. Listed below are several policies or events that affect the performance of the economy:

1. The level of investment decreases because of a lack of confidence in the economy.

2. Interest rates are kept artificially low by the Federal Reserve for several years.

Required:

For each of the items above, describe what would be the likely outcomes in the economy. Use the appropriate tools of analysis, such as aggregate demand and aggregate supply where appropriate, to justify and explain your answer.