Assume thаt the pоtentiаl GDP is $10 trilliоn but the аctual GDP is $8 trilliоn, and assume that the MPS is .25 and that the RRR is .1. 1. What should the government do to personal income taxes? (Raise or lower) (1) point) 2. What should the government do to its own level of spending? (increase or decrease) (1 point) 3. By how much should the government change spending to achieve full-employment equilibrium? You must show work. (1 point) 4. By how much should the government change taxes to achieve full-employment equilibrium? You must show work. (1 point) 5. If the government does either of the above, what will happen to the government's budget--towards deficit or towards surplus? (1 point) 6. Draw the loanable funds market graph. (1 point) 7. Following the change in either 2 or 3, show the change on the loanable funds market graph. Making sure to use directional arrows. (1 point) 8. Following the change to the interest rate show in part 7, what will happen to investment spending in the country? Explain. (1 point) Assume that the government doesn't enact the policies in numbers 2 and 3. Instead, the central bank uses monetary policy to correct the short-run disequilibrium. 9. If the economy has ample reserves, what should the central bank do correct the economy? State the specific tools, and star the tool that is most effective at changing the economy. (1 point) 10. Draw the reserves market graph. (1 point) 11. Show the change from part 9 on the reserves market graph. Making sure to use directional arrows to show changes. (1 point) 12. Now assume that the economy has limited reserves. What are the three tools of monetary policy in a limited reserve system? Star the most important tool. Make sure to say what the central bank should do to each of those tools to correct the economy. (1 point) 13. Draw the money market graph. (1 point) 14. Show the change following the policies enacted in part 12. Making sure to use directional arrows. (1 point) 15. Look at the changes to interest rates in numbers 8 and 11/14. Draw a conclusion (and discuss) the drawback present in fiscal policy that is not seen in monetary policy. (1 point)