Macroeconomics Malea 8

timer Asked: Aug 5th, 2015

Question description

Assume the following data for the economy in the United States:

  • Inflation is at 4.5% and has been rising for the last 3 years from a low of 1.2%
  • Unemployment is at 4.8% and has been falling for the last 6 years from a high of 7.8%
  • The GDP is at $15.36 trillion and has been growing at about 3% for the last 7 years.

Answer the following questions using the data above. EXPLAIN ALL YOUR ANSWERS IN DETAIL.

  • What problem is the economy facing?

The problem that the economy is facing is 

  • Assume you are a governor on the Federal Reserve Board of Governors. What type of policy (Easy Money or Tight Money) would you recommend to fix the problem you identified in question 1?
  • Which tool(s) would you recommend using to fix the problem you identified in question 1?
  • What could happen in the economy that might make that policy choice ineffective?

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