Question
1. The FOMC os presented with data and analysis that indicates the output gap has changed from being close to 0 to now being large
1. The FOMC os presented with data and analysis that indicates the output gap has changed from being close to 0 to now being large and negative. Additionally, inflation is 1.2% instead of the target 2%. Predict how the FOMC is likely to change its interest rate target by changing: (1) the floor framework and (2) the discount rate. Explain how altering these rates can help close the output gap.
2. The Fed has decreased the federal funds rate--a nominal short-term interest rate--to 0%, and yet the economy is still struggling. Explain what tools it still has at its disposal to help spur the economy and how it could use them.
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