Question: New data available to the Federal Reserve shows that the unemployment rate has risen to 7%. The Federal Funds rate is currently 5%.
a. The Federal Reserve is considering whether to raise the Federal Funds rate to 6%, lower it to 4%, or leave it at 5%. What do you suggest? Carefully Explain.
b. Based on your answer to part a above would you suggest the Federal Reserve, buy bonds, sell bonds, not buy or sell bonds? Carefully Explain.
c. Using the AD/AS model what do you predict will happen to the level of Real GDP and the Price level in the U.S. in the Short-Run and Long-Run? Carefully Explain (a graph would help).