1. Is the economy now at full employment, or is it experiencing cyclical unemployment?

2. Should the Fed try to lower the unemployment rate to zero?

3. Has inflation been stable, rising, or falling?

4. Why is inflation bad, i.e., why should we desire low and stable inflation?

5. Is current inflation low enough? Too low or too high?

6. How does GDP growth over the last year compare to GDP growth over the previous 20 years? So is the economy ill, healthy, or so-so?

7. Does the federal budget deficit represent a threat to the economy? Try to balance the budget using the budget simulator at https://www.crfb.org/debtfixer and post the results of your best effort on the discussion board.

Make a Forecast Make a forecast of the following key data variables for this time next year (i.e., what will GDP growth be in 12 months). I want a number for each variable; I want a single sentence explaining why you think that number is reasonable. I do not care what number you choose, as long as you can support it with a one-sentence reasonable argument. I will use the forecast to evaluate whether your policy makes sense.

1. the GDP growth rate

2. the inflation rate

3. the unemployment rate

For the next 12 months, what potential shocks would cause you to change your forecasts, and how would the shock affect your forecast (e.g., suppose oil prices jump: what happens to your forecasts)? Make Policy This part will determine 45% of your grade on this project. Based on the current data, your analysis of the current data and your forecast of the economy over the next 12 months, determine the following policies:

1. Should the Fed increase, decrease, or hold constant the fed funds rate? Why?

2. Should fiscal policy-makers cut taxes or raise taxes? Why?

3. Should fiscal policy-makers reduce defense and non-defense spending or increase defense and non-defense spending? Why?