The economy has seen the unemployment rate decrease from 8.56 percent to 6.15 pe

Question

The economy has seen the unemployment rate decrease from 8.56 percent to 6.15 percent, the inflation rate increase from 1.4 percent to 3.2 percent, and there has been a 17 percent increase in consumer spending and a 22.5 percent increase in investment spending in the same time period.

a) Given the above, what would you predict about the overall direction of the economy? Explain your answer by referring to each of the indicators cited. (5 marks)

b) Describe the fiscal policy that will already be automatically operating, as well as the appropriate discretionary fiscal policy that the government should adopt, given the above situation. (3 marks)

c) Describe the appropriate monetary policy that the Bank of Canada should be operating, given the above situation. (2 marks)

Explanation / Answer

A. In this case, we are in an expanding economy. We know this by the steady increase of all economic indicators, inflation, unemployment,investment, and spending. B. In this case, there are low interest rates, but as the economy continues to expand, the FED will increase the interest rate, to try to induce savings and consumption in future periods. C. The bank of Canada, should continue, to invest and increase investments. Since the economy is expanding, interest rates will be rising and loans for backs are currently cheaper than they will be Hope this helps

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