How monetary policy affects interest rates and aggregate demand

Purpose of Assignment 

Students will example the model economists use to analyze the economy’s short-run fluctuations–the model of aggregate demand and aggregate supply. Students will learn about some of the sources for shifts in the aggregate-demand curve and the aggregate-supply curve and how these shifts can cause fluctuations in output. Students will be introduced to actions policymakers might undertake to offset such fluctuations. Students will see why there is a temporary trade-off between inflation and unemployment, and why there is no permanent trade-off. 

Assignment Steps 

Resources: National Bureau of Economic Research  

Select an organization your team is familiar with or an organization where a team member currently works. 

Create a 15- to 20-slide Microsoft® PowerPoint® presentation to present to the organization’s Executive Committee.

Include the following items: 

· Identify the three key facts about short-run economic fluctuations and how the economy in the short run differs from the economy in the long run.

· Explain economic fluctuations and how shifts in either aggregate demand or aggregate supply can cause booms and recessions using the model of aggregate demand and aggregate supply.

· Explain how monetary policy affects interest rates and aggregate demand.

· Analyze how fiscal policy affects interest rates and aggregate demand.

· Evaluate why policymakers face a short-run trade-off between inflation and unemployment.

· Evaluate why the inflation-unemployment trade-off disappears in the long run. 

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