Monetary and fiscal policy instruments are used to affect the aggregate demand (AD) in the economy.

a. What is the difference between contractionary and expansionary monetary policy? What is the difference between contractionary and expansionary fiscal policy? How does each policy affect the AD in the economy?

b. What are the benefits and major problems of the fiscal policy and monetary policy?

There is a short-run tradeoff between inflation rate and unemployment rate. In the short-run the tradeoff of between inflation rate and unemployment rate creates a challenge for macroeconomic policymakers.

a. If you were macroeconomic policymaker, how do you balance the short-run tradeoff between inflation rate and unemployment rate? Explain.

b. What is the historical relationship between rates of unemployment and inflation in the U.S. economy? What are the most current figures for the unemployment rate and the inflation rate? What does this say about the U.S. economy today?