During 2001 recession, there were 2.1 million jobs lost and unemployment rose from 3.9% to 6.3%. Real GDP growth slowed to 0.8% compared to 3.9% average annual growth during 1994–2000.

1. Using IS-LM model to explain the causes of the 2001 recession.

2. George W. Bush was elected president in 2000 and his administration conducted fiscal policy together with the monetary policy conducted by the Fed responding to the recession. Please explain both the fiscal and monetary policy using IS-LM model.

3. Although the fiscal policy conducted by the Bush administration successfully expanded aggregate demand and stimulated economy out of the recession, it came with a price. State your understanding about this “price” and its potential influences.