1. The main variables used in macroeconomics are output, price level, unemployment, and interest rates. Changes in these variables are interrelated in various ways.

B. Interest rates, the price level, and employment are closely interrelated concepts in macroeconomics.

I. Describe how changes in interest rates affect unemployment and the price level. (12 points) II. Discuss the government policies that can be used to control inflation, and analyze the effects of these policies on other important macroeconomic variables.