13.1 Introduction

In Chapter 12, you learned what causes shifts in aggregate demand and aggregate supply curves that create macroeconomic fluctuations. You also learned how countercyclical macroeconomic stabilization policies—monetary and fiscal policies—are used to moderate such fluctuations, reducing unemployment and inflation’s duration and magnitude. In this topic, you will learn how macroeconomic stabilization policies were used to deal with the two most recent recessions. In addition, you will study the advantages and disadvantages of fiscal policy and of monetary policy as stabilization tools, and the challenges policymakers face in calibrating stabilization policies to achieve desired policy objectives. Finally, you will learn how an understanding of macroeconomics and stabilization policy can help managers and individuals make better economic decisions.