1. The economy has seen the unemployment rate decrease from 9.5% to 6%, the inflation rate increase from 1.2% to 2.8%, and there has been a 24% rise in consumer spending and a 45% rise 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. (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)