1. 3 stage monetary process for monetary policy to affect output a.

Explain the three stage process where by monetary policy influences the level or rate of growth of GDP. What happens when too much money is injected into an economy? Use graphs and curves. Label carefully and explain each graph in each stage. Stage 1 -Change in Ms leads to a change in equilibrium interest rates. -Increase in Ms leads to a decrease in equilibrium interest rate -Accomplished by the FED (federal Reserve Bank) when they: -Decrease the reserve requirement -Decrease the discount rate -The Fed buys back bonds and puts money into the system Stage 2 -Change in equilibrium interest rate leads to a change in Investment. -(Investment includes business spending on new plant and equipment and consumer spending on owner occupied and rental housing) -Change in equilibrium interest rate leads to a change in the value of the dollar on foreign exchange markets changing net exports. -Decrease in equilibrium interest rate leads to an increase in Investment -Decrease in equilibrium interest rate leads to a decline in the value of dollar in foreign exchange markets (foreign dollars now buy more U.S. goods) and exports increase. Stage 3 -Change in Investment and change in exports lead to a change in Aggregate Demand (AD) -Increase in Investment shifts AD right -Increase in exports shifts AD right 2. Explain bailout program- Tarp-why was it necessary (what caused it)-name head of fed reserve and secty treasury ,; will it work Dr Ben Bernanke, Chairman Federal Reserve Board, Economist Mr Henry Paulson, Secretary Treasury, Former Goldman Sachs Banker 3. What is Money & Money Supply why imprtt Money a. What are the characteristics and key attributes and how have they changed with changes in technology? - Money is any commodity or token that is accepted to do a transaction or settle a debt. Also is a medium of exchange, because promotes efficiency by minimizing time spent in the exchange of a good

or service, also is a unit of account that can be used to measure value. b. What does the term faith and credit mean and why is it important? - Is the ability to stand behind currency transaction. Also the commitment to pay any interest or debt, which is guaranteed by the U.S Treasury. c. What does the Money Supply M1 & M2 consist of? How is it measured? - M1 and M2 are measures of money. M1 consist of currency, travelers check and checking deposits. While M2 is M1 plus saving deposits and mutual funds. d. Why do classical economists think the supply of money is important in an economy? Hint: Explain how monetary policy flows through C+I+G+ (X-M) = Yp formulation. The quantity theory of money is the proposition that in the long run, an increase in the quantity of money brings an equal percentage increase in the price level.

4. What is diff Fiscal & Economic Policy? what is Obama's Economic Plan? Money Supply increase, then Real GDP demand increase. Government spending increase, then Real GDP demand increase. Taxes increase, then Real GDP demand decrease Net Exports increase, then Real GDP demand increase Consumer optimism increase, then Real GDP demand increase. Business optimism increase, then Real GDP demand increase