The Chairman of the Federal Reserve has announced that they made a mistake and should have addressed the increasing inflation rate earlier.
The Chairman of the Federal Reserve has announced that they made a mistake and should have addressed the increasing inflation rate earlier. As a result, the Fed will increase the interest rate this month and again in the summer. What type of monetary policy is he implementing? Do you agree or disagree ? Why?
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Questions (each question is worth 25 points and the format are 25 points)
Assume you are in an economic leadership of the hypothetical country June. You have received the following economic data:
Real GDP has been declining for the last 8 months. It is currently at $125 billion; this is below the country’s potential GDP of $250 million.
The unemployment rate is at 10%, which is higher than the natural rate of 5%.
The inflation rate has been declining.
Based on the information provided, what is the state of the economy? Is it a recession or expansion? Do you have an inflationary or a recessionary gap? Draw an Aggregate Demand and Aggregate Supply graph to show the situation.
Based on the answer for question 1. What type of fiscal policy would you use to being the economy back to the macroeconomic equilibrium?
Based on the answer for question 1. What type of monetary policy would you use to being the economy back to the macroeconomic equilibrium?