Monetary Policy

Assume the United States economy has the following:

• GDP is $15,600 billion up from $13,400 billion four years ago.
• Unemployment is at 4.0% down from 7.7% three years ago.
• Inflation is at 3.7% up from 1.2% four years ago.
• NRU = 4.0%
• Target Inflation is 2.0%

1. What is the problem the country is facing using data to support your conclusion. Explain.
2. Should the Federal Reserve adopt an expansionary or restrictive monetary policy (Easy or Tight Money)? Explain.
3. Which policy tool will the Federal Reserve rely on to carry out the policy you recommended in Question 2? Explain.
4. What could happen to make the policy you recommended in Question 2 ineffective? Explain.