Suppose recent figures published by the Fed indicate that M-2 has been dropping rapidly. The rate of inflation is at 1 % and the unemployment rate is at 6.5% and rising. Assume the natural rate of unemployment is 3.5%.
Congressional critics of the Fed have been grumbling that the Fed is being unresponsive to consumers and the economy and should allow interest rates to fall.
What type of open market operations could the Fed use to quell the critics in Congress and meet their wishes and What would be the effect of this policy on investment and the economy? (Explain which monetary theory you are using)?