The economy has seen the unemployment rate increase from 6 percent to 9.5 percent, the inflation rate decrease from 2.8 percent to 1.2 percent, and there has been a 24 percent decline in consumer spending and a 45 percent decline 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.
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.
c. Describe the appropriate monetary policy that the Bank of Canada should be operating, given the above situation.