(a) For each of the following scenarios briefly describe the policy mix that would result in each of the following situations:
(i) The interest rate decreases, investment increases, and the change in aggregate output is indeterminate.
(ii) Aggregate output increases and the interest rate is indeterminate.
(iii) The interest rate increases, investment decreases, and the change in aggregate output is indeterminate.
(iv) Aggregate output decreases and the interest rate change is indeterminate.
(b) For each of the following scenarios briefly describe what are the effects on the aggregate demand curve:
(i) The Fed lowers the discount rate
(ii) The price level decreases
(iii) The federal government increases federal income tax rates
(iv) Pessimistic firms decrease investment spending
(v) The inflation rate falls by 3 percent
(vi) The federal government increases purchases to stimulate the economy.