Chapter 17.3, Problem 2R

To determine

To show: The policies used by monetarists to slow and stimulate the economy.

Explanation of Solution

The diagram below lists the policies used to slow down and stimulate the economy:

  

To slow down the economy, monetarists will reduce the amount of money circulating in the economy. This will cause a reduction in aggregate demand and hence the economy will slow down. To stimulate the economy, monetarists increase the circulation of money in the economy, which increases aggregate demand in the economy, which further increases the need for workers and decreases unemployment.