This question compares the policies of the federal government and the Federal Reserve and their likely effects on interest rates, output, and investment during the mid- to late 1970s.

1. President Johnson and Congress passed large increases in government spending to finance Great Society programs and the Vietnam War.
2. Beginning in the mid-1970s, Federal Reserve Chairman Arthur Burns sought to decrease unemployment below its natural level by decreasing interest rates.
3. (a)Graphically illustrate the effects of the fiscal and monetary policies mentioned in (I) and (II) in one IS-LM diagram.
4. (b)Explain the combined effects of the two policies on interest rates, output, and investment.