Assume the following data for the economy of the United States:
• Inflation is at 4.5% and has been rising for the last 3 years from a low of 1.2%.
• Unemployment is at 4.8% and has been falling for the last 6 years from a high of 7.8%.
• The GDP is at $15.36 trillion and has been growing at about 3% for the last 7 years.
Answer the following questions using the given data. Explain your answers in detail.
1. What problem is the economy facing?
2. Assume you are a governor on the Federal Reserve Board of Governors. What type of policy (easy money or tight money) would you recommend to fix the problem you identified in question 1?
3. Which tool(s) would you recommend using to fix the problem you identified in question 1?
4. What could happen in the economy that might make the policy choice ineffective?