Go to httpsffededucationorgchairman Use the Learn More butto

Go to http://sffed-education.org/chairman. Use the Learn More button and review the tight (contractionary) and easy (expansionary) tools of the Fed as well as the use of each. Briefly examine the Economic Dictionary and the Policy in Depth features.

Now play the game! You are the Fed Chairperson! You begin with 16 quarters, 4 years, then your job is up for review. You begin with rates at 4.5, inflation at 2.14% and unemployment at 4.75%.

Make decisions on interest rates for the 16 quarters. Summarize the changes you chose and explain your results. Do you still have a job? Why or why not?

Solution

Since unemployment is very high. I will reduce the interest rates to the level fo 1.50 to enhance employment in the economy. 3% ofunemployment is considered as natural and economy is deemed to operate at ful employment. As a result, employment will increase but inflation will also increase. So, I need to make a balance between inflation and employment. Thereafter also I need ot keep an eye on the market and use monetary policy as a tool as and when required. So far at 1.50% rate of interest, unemployment is quite low near 3%. We need to choose such a policy that unemployment remains between 3-4% and inflation does not exceed 5-6%