Write your responses in complete sentences. Your answers to each question should include 2-3 paragraphs (125-250 words).
1. What shape did the short-run aggregate supply curve have during the 1930s, according to Keynes? Explain.
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2. What is the multiplier? How is it calculated? Why is the multiplier related only to consumption spending?
3. What are the macroeconomic consequences of a budget deficit when the economy is operating at full employment? Be sure to discuss the effects in the short run and long run.
4. Suppose that the Fed purchases $1 million in bonds in the open market. Explain how the money supply can increase by more than $1 million
5. What happens to the price of bonds when the Fed sells bonds? What happens to the interest rate? What happens to the money supply?