Question 1

Assume the US economy is facing the following conditions:

• GDP = $20.2 trillion
• Unemployment = 6.8% and has been rising.
• Inflation = 1.7% and has been falling.
• NRU=4%

Answer the following questions based on the above information. Explain each answer.

1. What problem is the economy facing? Use data to support yourexplanation.
2. Should the Federal Reserve take action to solve the problem you explained in Question 1 or should they simply let banks manage the problem?Explain.
3. If the Federal Reserve does take action, should they increase or decrease the M-1 money supply?Explain why the action you recommended should be taken.
4. Which monetary toolwillthe Federal Reserve use to increase or decrease (Question 3) the M-1 money supply?Explain how the tool should be used to change the money supply.

Question 2

Assume the US economy is facing the following conditions:

• GDP = $22.1 trillion
• Unemployment = 3.9% and has been falling
• Inflation = 6.8% and has been rising
• NRU=4%

Answer the following questions based on the above information. Explain each answer.

1. What problem is the economy facing? Use data to support yourexplanation.
2. Should the Federal Reserve take action to solve the problem you explained in Question 1 or should they simply let banks manage the problem?Explain.
3. If the Federal Reserve does take action, should they increase or decrease the M-1 money supply?Explain why the action you recommended should be taken.
4. Which monetary toolwillthe Federal Reserve use to increase or decrease (Question 3) the M-1 money supply?Explain how the tool should be used to change the money supply.