Policymakers try to stabilize the economy using monetary policy instruments. If the Fed wants to stabilize aggregate demand, how should it increase the money supply? If it does this, what happens to the interest rate and rate of inflation? Why might the Fed choose not to respond in this way? Do you think monetary or fiscal policy is likely to be the more effective tool of stabilization policy? Why? If the government were to operate under a strict balanced-budget rule, what would it have to do in a recession? Would that make the recession more or less severe?