1. Briefly explain why monetary policy cannot beat both inflation and unemployment at the same time. (10 points) 2. Monetary authorities in a country face the following situation: Consumers are not spending, investment is low, and unemployment is relatively high. Explain how monetary policy could work to improve this situation. (10 points) 3. Briefly explain why the Fed is not very effective when a negative real shock occurs. (10 points) Page 1 of 2 4. Suppose the spending habits of consumers suddenly change so that consumption increases. What should the central bank do to restore the economy to the old equilibrium point? Explain your answer with the aid of an AD- AS diagram. 1. Briefly explain why monetary policy cannot beat both inflation and unemployment at the same time. (10 points) 2. Monetary authorities in a country face the following situation: Consumers are not spending, investment is low, and unemployment is relatively high. Explain how monetary policy could work to improve this situation. (10 points) 3. Briefly explain why the Fed is not very effective when a negative real shock occurs. (10 points) Page 1 of 2 4. Suppose the spending habits of consumers suddenly change so that consumption increases. What should the central bank do to restore the economy to the old equilibrium point? Explain your answer with the aid of an AD- AS diagram.