Consider the article Fresh Evidence of Flaring Wage Growth A

Consider the article “Fresh Evidence of Flaring Wage Growth Appeared in Fed’s Beige Book.”

A. What is the Fed’s “beige book” and what is its purpose? Answer in 1- 3 sentences.

B. Consider the AD & AS model discussed in class. The context of the article suggests that the US economy is operating along what portion of the AS curve? Explain in 2 – 4 sentences.

C. The article suggests the Federal Reserve is likely to do what concerning interest rates? Explain very clearly HOW the Fed is likely to send interest rates in this direction. Answer in 2-4 sentences.

Solution

A. The US Federal Reserve Board publishes the \"Beige book\", which is a detailed study and analysis of the economic condition of the nation. Its purpose is to provide information to interested parties including the public about the economic performance primarily from a qualitative view.

B. Considering the AD&AS model, the article suggests that the US economy is operating along the flat portion of Keynesian AS curve and moving towards an upward sloping region with economic growth indications. This means that the curve is relatively flat and moving towards the upward sloping region as the government is increasing its spendings to encourage economic activity through increased production, reduction in unemployment and increased consumer spending.

C. The article suggests that the Federal Reserve is likely to keep increasing the short term interest rates gradually and may even incrase the rates at a higher pace. The Fed is likely to increase the rates through the Federal Open Market Committee. It increases the rates through open market operations in which it sells securities to the banks. This reduces inflation.