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1994 1. Suppose that the following statements describe the current state of an economy. --The unemployment rate is 5% --Inflation is at an annual rate of 10% --The prime interest rate is 11.5% --The annual growth rate of real GDP is 5% A. Identify the major problem(s) the faces. B. Describe two fiscal policy actions that could be used to alleviate the problem(s). Using aggregate and supply model, explain how the actions you identified will affect each of the following. 1. Output and employment 2. Price level 3. Nominal interest rates C. Instead of using fiscal policy to solve the country’s problem(s), use only monetary policy. Describe two monetary policy actions that could be used to alleviate the problem(s). Using the aggregate supply and aggregate demand model, explain how the actions you identified would affect each of the following. 1. Nominal interest rate 2. Output and employment 3. Price level 2. Using the aggregate supply and aggregate demand model, explain how the use of monetary policy to promote long-run economic growth will affect each of the following. a. Short-term interest rates b. The composition (mix) of aggregate expenditures c. Potential gross domestic product 3. Assume that United States labor becomes more productive because of major technological changes. A. Using the aggregate supply and aggregate demand model, explain how the increased productivity will affect each of the following for the United States. 1. Output 2. Price level 3. Exports. B. Explain how changes in exports in (3) will effect the international value of the dollar.