1) Question: How does monetary policy affect the overall

economy?

Answer: Monetary policy, which involves the central

bank's control over the money supply and interest rates,

influences the economy by stimulating or slowing down

economic activity. For example, by reducing interest rates,

it can encourage borrowing and investments, thus

stimulating economic growth.

2) Question: What are the main differences between fiscal

policy and monetary policy in influencing the economy?

Answer: Fiscal policy involves government decisions

related to taxation, spending, and borrowing, while

monetary policy focuses on controlling money supply and

interest rates. While both can influence the economy, fiscal

policy directly impacts government revenue and

expenditure, while monetary policy primarily affects the

availability and cost of credit.

3) Question: Explain the concept of aggregate demand and

its components.

Answer: Aggregate demand represents the total spending

on goods and services in an economy. Its components

include consumption, investment, government spending,

and net exports. Consumption refers to household

spending, investment represents business and private sector

spending, government spending includes all government

expenditures, and net exports represent the difference

between exports and imports.