Economic growth has slowed in the last quarter of the year to 0.6% from the previous third quarter growth rate of 4.9%. The economy lost 12,000 jobs in the last month of the previous year while shedding 80,000 jobs during the months of January and February of the current year. Also, inflation across the board has increased at a rate of 4.3% over the last twelve months. For example, prices for food, gasoline, clothing, and entertainment have all increased. What should the Fed do?
1. Should the Fed buy or sell bonds, if any, through open market operations?
2. Is your choice an easy or tight monetary policy?
3. Describe the effect on Aggregate Demand (AD) and GDP.
4. What would be the probable effect on interest rates, inflation, and unemployment?