05 Jun Question Below are three hypothetical stories you
Question
Below are three hypothetical stories you must describe for each one of the stories:
1. The problem in the economy, if any (Describe from the information given in the
paragraph, why you chose that particular problem);
2. The monetary and fiscal policy to be used;
3. The tools of the policy and how they work to correct the problem;
4. Any undesirable consequences that may arise when the Fed and/or the federal govt.
implement the policy.
5. In your discussion please discuss the branch of the govt. that will implement each of
these policies (Federal government or the Federal Reserve.). 33 points each.
You must defend your answer for credit!!!!
A. The last five months has seen inflation rising at a faster rate. Five months ago
inflation was rising at an annual rate of 2%. Now 5 months later, the annual rate
is over 20%. The highest in 35 years. Retail sales are strong with monthly
increases of at least 4%. Car sales have been up every month for the last year.
The average increase in car sales has been 5% per month the highest in 20 years.
The housing market is booming with monthly increases in sales of new homes of
over 4%. Unemployment is 2.8% and falling. Most economists believe the
unemployment rate is well below the natural rate of unemployment of 4.5%.
Most businesses have almost no inventories due to the booming economy. The
money supply has been increasing at an annual rate of 12%.
1. The problem in the economy, if any? (Describe from the information given in the
paragraph, why you chose that particular problem)
2. The monetary and fiscal policy to be used;
3. The tools of the policies and how they work to correct the problem;
4. Any undesirable consequences that may arise when the Fed and/or the federal govt.
implement the policy.
5. In your discussion please discuss the branch of the govt. that will implement each of
these policies (Federal government or the Federal Reserve.).
B. Unemployment for the last 6 months has been around the 4.8% mark. Although
energy and food prices have been fluctuating up and down, the overall inflation
rate has remained constant at a 20 year low of below 1.7%. Car sales and durable
good sales are rising at a moderate but steady rate. Retail sales are increasing
briskly at a 4% annual rate. According to the latest data,GDP is rising at about
4% per quarter. Housing sales are rising at a moderate rate. Housing prices are
about the same as they were a year ago. Inventories are at desired the level. The
natural rate of unemployment is considered to be 5.0%.
1. The problem in the economy, if any (Describe from the information given in the
paragraph, why you chose that particular problem)
2. The monetary and fiscal policy to be used;
3. The tools of the policies and how they work to correct the problem;
4. Any undesirable consequences that may arise when the Fed and/or the federal govt.
implement the policy.
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