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
Part I:
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?
Part II
Directions:
The problem set answers should only contain answers. Do not retype the questions.
Answers for the problem set have to be typed using 12-point black font and double spaced.
All answers are to be black font, typed, including any calculations.
Answers should be given in a paragraph form that provides a thorough explanation. A one sentence answer is not adequate. Even in the case of calculations, they should be explained.
Graphs are to be neatly hand drawn.
Graphs are to be clearly labeled
Graphs are to be inserted into the paragraph of the answer
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?
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