Directions:

Provide a monetary policy recommendation based on a description of the state of the economy provided below and to explain how their policy recommendation will affect the economy.

Question 1:

Suppose the Federal Open Market committee releases the following statement about the state of the economy:

"Information received by the FOMC indicates that inflation increased much faster than anticipated, while the unemployment rate remains somewhat below its estimated natural rate. Consumer demand remains strong, and job openings exceed the number of unemployed. Price increases in goods and services are primarily driven by higher wages. Commodity prices and transportation costs remain near their average over the last 20 years."

Provide a brief comparison of this assessment of the economy with the dual mandate of Federal Reserve and describe whether the Federal Reserve is currently achieving the goals of the dual mandate.

Question 2 :

Provide a monetary policy recommendation based on this assessment of the economy.

Question 3:

Provide a comprehensive reasoning explaining why the recommendation you gave in response to Question 2 is the appropriate action, and how you expect the relevant macroeconomic variables (industrial production and gross domestic product, inflation, and unemployment) to respond to your recommendation.