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

(10 marks)

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)