Part I

Note that graphs, while helpful in explaining pertinent concepts, are not necessary for successfully answering these questions. A good written description of market processes will suffice as well

1. Explain the process through which each of the following affects the money supply:

The Fed buys bonds
The Fed raises the discount rate
The Fed raises the reserve requirement ratio

2.Explain the dynamics through which an increase in the stock of money affects real output and the price level in the short run.

Part II

1.Which fiscal policies might "activist" Keynesian economists recommend to help a depressed economy regain full employment? Explain how they work.

2.Critics of Keynesian policies cite the problem of ‘lags', and of ‘crowding out'. Illustrate what are they, and what impacts do they have on the outcomes of Keynesian countercyclical policies?