For section 2. use the following information U.S. Economic Circumstances, January of 2025 Consensus value for long term labor productivity trajectory = 2.0% Consensus value for long term growth in the labor force = 0.5% Consensus value for NAIRU = 4% Consensus value for * = 2% Consensus value for neutral real short rate = 1% Ten-year historical performance for velocity of Money: highly volatile The unemployment rate is 6% The inflation rate is 4% In 2025 Donald Trump, Jr. is elected President and he appoints Judy Shelton as the chair of the Federal Reserve. She pledges to conduct monetary policy in strict accordance with the rule generally associated with Milton Friedman. She does so over the first six months of 2025. 1. Write down the equation that is associated with Milton Friedman's guidance on conducting monetary policy. (1.5 point) 2. What assumption-contradicted by information provided above-must Chair Shelton make to feel confident about following this rule? (1.5 point)3. The N.Y. Fed, following Chair Shelton dictates, conducts open market operations. They will buy and sell t-bills in an effort to do what? (2 points) a) Keep the fed funds rate stable b) Target a fed funds rate dictated by incoming values for U and i ") Target a growth rate of 45% for Money d) Target a growth rate of 25% for Money e) Target 2.5% for money growth and 4.5% for the fed funds rate Over the two quarters Chair Shelton embraces this strategy, the following unfolds: Jan. Feb. Mar. Apr. May. Jun. M1 (annualized growth rate) 5.8% 4.3% 5.2% 5.9% 6.1% 4.9% fed funds rate 8% 4% 6% 2% 9% 3% CPI (annualized growth rate) 3% 2% 2% 1.5% 1.5% 1.0% Unemployment rate 6% 6.20% 6.40% 6.80% 6.90% 7.10% 4. Why did the FRB raise rates in March, lower rates in April and raise rates in May? (2 points) a) The N. Y. Fed was incompetent and failed to meet its fed funds target. b) The FOMC demanded tightening/easing/tightening, in reaction to swings in the jobless rate. c) N. Y. Fed open market operations were focused on money growth, not interest rates. d) The N.Y. Fed met its real fed funds rate target. 5. If Chair Shelton chose to argue that the Fed should stay the course, what could she say? (2 points) a) That money supply growth was close to target b) That inflation remained at or below target e) That monetary policy works with a lag d) All of the above e) None of the above 6. Chair Shelton, in July mid-year Congressional testimony, might well hear major complaints about her strategy from Congressmen and Congresswomen. They would most likely complain about? (2 points) a) The risk of accelerating inflation in the near future b) The sharp rise for unemployment over the six-month period c) The wild volatility for interest rates d) The volatility exhibited for monetary growth e) Both a and d f) Both b and c