1. What is the Federal Reserve and why is its independence from political pressure important?

2. What are the three main tools the Federal Reserve uses to implement monetary policy?

3. How do open-market operations affect the money supply?

1. Who sets fiscal policy and what are the two main tools used to influence the economy?

2. What happens when tax receipts are not adequate to pay for public spending?

1. What are the components of expansionary fiscal policy and expansionary monetary policy?

2. How do expansionary policies affect aggregate demand, output, unemployment, and real GDP?

3. How can a recessionary gap be closed through self-correction, and how can expansionary policy accelerate this process?

4. How might expansionary fiscal policy lead to higher inflation and what role can monetary policy play in response?

1. What are the components of contractionary fiscal policy and contractionary monetary policy?

2. Why are democratically elected politicians reluctant to enact contractionary fiscal policy?

3. How does contractionary policy correct an inflationary gap and restore real GDP to its potential?

1. What are the short-run economic outcomes when both expansionary fiscal and monetary policies are used together?

2. What are the short-run economic outcomes when both contractionary fiscal and monetary policies are used together?

3. Why are the results less certain when fiscal and monetary policies work in opposite directions?