Fed Policy Theory Scenario 1 For the following Scenario INDICATOR 1ST QUARTER 2ND QUARTER 1) What is the main problem facing the economy? Explain REAL GDP -1.7% -1.0% using the Fed's Dual Mandate. [5 pts] CPI 0.5% 1.6% 2) Where is the economy on the business cycle (Be specific)? [5 pts] UR 8.5% 8.1% 3) What should the Fed do? [10 pts] (a)Options: . Expansionary or Contractionary Policy? Explain. (b) Policy Tools: Which policy or policies should the Fed use? Explain. . Reserve Requirement? Discount Rate? Open-market Operations