Question #1: Stimulating the economy is accomplished in one of two ways. The government can increase government spending or decrease taxes. Both ways have positives and negatives on the economy. First, the positives of increasing the government spending while keeping the tax rate unchanged are as follows. If the government increases spending aggregate demand will be directly affected by the increase. If the demand increases, prices will rise until supply and demand are again at an equilibrium. The new equilibrium and GDP will be increased by an amount equal to the increased spending. Further, the multiplier effect of the government spending, when the government increase spending on purchases it will create more job opportunities. This will increase consumer spending which will encourage private investment spending to meet the demand. In turns that will create more jobs in the economy. The negatives of increasing government spending are as follows. It is very important to remember that government spending to stimulate the economy is not free. The funds are not going to come from thin air. The government has two options to generate the money without increasing taxes, borrowing the money domestically, or from foreign governments. Both cases increase the national debt, or cut some government programs to stimulate others. Borrowing the money domestically, from local investors, will stop these investors from creating new businesses. This will lead to less job creation in the economy. When the national debt increases the future tax rate will increase which will slow the economy in the future. That will lead us to conclude that stimulating the economy by borrowing is a short term solution. While cutting other government programs can be described as taking water from one end of the swimming pool and adding it to the other end. This will not increase the