1)Discuss whether you think government debt is a good or bad thing.

2)The federal funds rate is the interest rate on _____, and it is controlled by the _____.

A) loans from the Federal Reserve to banks; Federal Open Market Committee

B) reserves that banks lend to each other; Federal Open Market Committee

C) loans from the Federal Reserve to banks; president and Congress

D) reserves that banks lend to each other; president and Congress

1)Having no debt is better than having debt. However, taking on debt can make sense if you are deriving a benefit from the greater debt than the cost. For instance, during WWII, the US took on tremendous debt to beat Nazi Germany. The survival of the country was deemed worthwhile enough to take on debt. The US then spent the next 40 years paying down that debt. Other examples of when debt is acceptable could be paying for roads and infrastructure that benefit the country. Then the increased economic activity could be used to pay down the debt. Government spending during a recession is also an acceptable debt. This can help the economy from suffering even more than it otherwise would. Then those debts can be paid off during the ensuing recovery.

The problem with debt is when it is allowed to get out of control and increase for non-optimal wants. Eventually, it reaches a point where borrowing is no longer an option. This is when debt causes money printing in excess and increased inflation with all the distortions in the economy that this creates. This will lead to a period where the economy is weaker than it otherwise would be. The tricky thing about this is that it can take years for the debt to become a problem on a governmental level. However, once it becomes a problem, it can be a hard problem to fix and it can jeopardize the economic wellbeing of the whole country.

As an example, Greece had a debt problem along with the 2007–2008 recession. While many countries had a bad recession that was slow to recover, Greece had a depression that lingered for years. The government wasn't able to provide the spending cushion to the economy that an increased debt would have allowed and was instead forced into austerity measures that made the recession much worse.

2)

The best answer is B)

The federal funds rate is the interest rate on reserves that banks lend to each other, and it is controlled by the Federal Open Market Committee.

One of the Fed's tools is the reserve requirement - a percentage of deposits that banks are required to keep available and "on reserve." Those funds cannot be loaned out and must be maintained on a daily basis. At the end of each day, a bank that doesn't have enough funds to meet the reserve requirement can borrow from another bank that has excess reserves. The Fed sets that rate, which is called the federal funds rate, or sometimes nicknamed "the overnight rate."