When the economy gets into serious problems, the government has two policies that offer the potential to get us back to equilibrium. Fiscal Policy works through government spending and taxes, while Monetary Policy works through the money supply. Read each scenario below and decide what the correct fiscal and monetary policy would be to correct the issue.

1. You read the following information on the economy. The economy has fallen into a recession. Use this information to do three things below:

 A) Draw an AS & AD graph that fits the details above.

B) What is the corrective fiscal policy in this case?

C)What is the corrective monetary policy?

D)What, if any, problems might be encountered as a result of the above actions?

Fiscal and Monetary Policy Handout

2. You read the following information on the economy. Demand-pull inflation has increased across the U.S. Use this information to do three things below:

A) Draw an AS & AD graph that fits the details above.

B) What is the corrective fiscal policy in this case?

C) What is the corrective monetary policy?

D) What, if any, problems might be encountered as a result of the above actions?