Support your thoughts with economic assumptions and theory

Be specific, and to the point in using theory.

Support your thoughts with economic assumptions and theory

1.Each year during Christmas shopping season, consumers and stores increase their holdings of cash.

Explain how this could lead to a multiple contraction of the money supply. How can authorities prevent this contraction?

2. Use an aggregate demand and supply diagram to show that multiplier effects are smaller when the aggregate supply curve is steeper. Which case gives rise to more inflation—the steeper aggregate supply curve or the flat one? What happens to the multiplier if the aggregate supply curve is vertical?

3.Explain how the U.S. government managed to accumulate a debt of more than $16 trillion. To whom does it owe this debt? Can the debt be considered a burden on future generations?

4.Explain the difference between crowding out and crowding in. Given the current state of the economy, which effect would you expect to dominate today.

5.Discuss the following statement. “Higher labor productivity allows firms to produce more goods with the same number of workers and thus sell the goods at the same or even lower prices. That is why increases in labor productivity can permanently reduce the rate of unemployment without causing inflation.”