Assume the GDP in the United States is at $20.5 billion dollars and has been growing at about 3% for the last 5 years. The unemployment rate is 4.0% and has been stable at that level for 7 months. The inflation rate is at 4.8% which is up from 2.5% two years ago. Economists at the Council of Economic Advisors estimate the NRU to be 4% and the target inflation to be 2.3%.

1.What problem(s) is the economy facing? Explain in detail using the data to support your explanation.

2.What would be an appropriate Fiscal Policy to deal with the problem you identified in Question 1 and which Policy Tool should be used to carry out the policy? Explain in Detail the Policy and how the tool works to help solve the problem.

3.What would be an appropriate Monetary Policy to deal with the problem you identified in Question 1 and which Policy Tool should be used to carry out the policy? Explain in Detail the Policy and how the tool works to help solve the problem.

4.Which of the two policy options you identified in Questions 2 and 3 would be the more effective in dealing with the problem you identified in Question 1? Explain in detail.