Stabilization policy & the introduction of open economy. N discuss the effectiveness of monetary policy in affecting output. N compare how fiscal & monetary policies affect ad. N use of fiscal & monetary policies to smooth out business cycles. N discuss issues related to stabilization policy such as the crowding out effect and national debt. N monetary policy could be used to affect output: Introduce open economy in our model discuss the country"s balance of payments: to increase output the central bank should run expansionary monetary policy, to decrease output the central bank should run contractionary monetary policy. N answer: yes if the links hold up. For example, when ms increases, interest rate decreases: this decrease in interest rate would stimulate (physical) investment if firms and households were willing to invest. Investment increases ae increases ad increases y increases.