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a) Using the concept of aggregate demand, briefly explain what happens to unemployment during the following phases of the business cycle:

a) Using the concept of aggregate demand, briefly explain what happens to
unemployment during the following phases of the business cycle: [4 marks]
• contraction
• expansion
• recession
• recovery
b) The government wishes to use an expansionary policy to bring the unemployment
rate down from 10% to 4%.
(i) Describe the two main fiscal policy options. [2 marks]
(ii) How would the Reserve Bank act if the government's fiscal policy is too strong?
[2 marks]
(iii) Identify the "transmission channels" through which your policy may achieve its
aims. [3 marks]

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