1. It is often said that the Federal Reserve Board typically cares more about inflation and less about unemployment than the administration. If this is true, why might presidents often worry about what the Fed might do to interest rates?
2. The year 2007 closed with the unemployment rate around 5 percent, real GDP barely growing, inflation above 2 percent and apparently rising a bit, and the federal budget showing a large deficit.
a. Give one or more arguments for engaging in expansionary monetary or fiscal policies under these circumstances.
b. Give one or more arguments for engaging in contractionary monetary or fiscal policies under these circumstances.
c. Which arguments do you find more persuasive?