1. The tax cut has increased the annual deficit to one trillion dollars. There is a trade war with China, resulting in higher prices for many goodsincluding cars, appliances, electronics, etc. At the same time US farm goods are being kept out of China. There are new tariffs with our European allies because they did not pull out of the Iranian deal. Also, many illegal immigrants who have productive jobs in the US are starting to be deported.

All this is evident in the economic data. Real GDP is increasing at only 2.4%, due to the shortages of labor and raw materials. Unemployment is at 2.9%, significantly below the natural rate of unemployment or NAIRU. The lowest unemployment rate since 1951 during the Korean War.Due to shortages of labor and material, prices are rising faster. The annualized inflation rate is up to 12% and rising. The highest since 1984.

What Monetary Policy should be used?

What is the best tool of Monetary Policy that the Fed should be used in this scenario? Describe step-by-step how this policy would work

8. What could be a possible bad outcome of using this policy?