Question: (Stolen from text) The economy of the People’s Republic of Antarctica receives word of an imminent penguin attack. The news causes expectations about the future to be shaken. As a result, firms cut their investment plans significantly.

a. Suppose neither the government nor the Bank of Antarctica do anything in response to this news. Show the impact on prices and GDP.

b. To counteract the fall in investment, the Beloved Leader of the PRA calls for an increase in government spending. To finance the increase, his financial advisors have come up with three proposals.

a) Increase taxes by an identical amount.

b) Borrow the money by issuing new government bonds to the public.

c) Print more money

Rank the three funding proposals from the least expansionary to the most expansionary. Justify your ranking.