Question

To solve the problem, indicate how you would use
an appropriate monetary and a fiscal policy tool. Do not use the same
specific policy solution more than once.
1a. CPI: increasing at a 4% rate.
1b. GDP: increasing at .5% rate
1c. Unemployment rate: 8%.

Answer 1

1a.) When CPI is increasing, this means that inflation is increasing. The goods and d=services are becoming costlier. The central bank shall control the inflation by keeping a check on the consumer spending and this shall be done by increasing the interest rates so as to control spending. Thus this contractionary monetary policy adopted will help control inflation.

1b.) Since the GDP is increasing at decreasing rates, to impact the GDP to grow at faster rates; the government can indulge in policies to increase the aggregate spending or supply. This can be achieved by adapting fiscal policies by cutting taxes or increasing government spending or through monetary policies by  cutting interest rates.

1c.) To reduce unemployment rate the government shall focus on reducing consumer burden. This shall be achieved by expansionary fiscal policy. The government can thus increase its spending or decrease taxes. This shall increase aggregate demand and thus spending. This will increase GDP and reduce unemployment.