In the fall of 2003, the economy had not yet returned to the natural rate of unemployment following the end of the recession of 2001. An article in the Wall Street Journal noted the following:

Perhaps the best cure for (unemployed workers’) woes would be a return to the unusually strong economy of the late 1990s, when unemployment fell so low that employers couldn’t be picky. President Bush and Federal Reserve Chairman Alan Greenspan are working on that, (using) tax cuts and interest-rate cuts.

a) Which of these two actions is fiscal policy and which is monetary policy?

Fiscal Policy:

Monetary Policy:

b) Briefly explain how tax cuts and interest-rate cuts reduce unemployment.