Assume the interest rate on a Treasury bill is 2 percent and will pay its owner $1,000 when it matures in one year.

i. What is the price of the Treasury bill in today's market?

ii. Suppose that the Fed engages in open market sales which results in the interest rate on new one-year Treasury bills rising to 3 percent. What will happen to the price of these existing Treasury bills with rates of 2 percent? Why?

Identify each of the following events as: (use a, b, or c to answer the question)

a) part of an expansionary fiscal policy
b) part of a contractionary fiscal policy
c) or not part of fiscal policy

i. The corporate income tax rate is increased.

ii. Defense spending is increased.

iii. Families are allowed to deduct all daycare expenses from their federal income taxes.

iv. The individual income tax rate is decreased.

v. The State of New York builds a new highway.