Assume these data points about a hypothetical state of the U.S. economy: 1) Inflation in the last quarter was at an annual rate of 1.5%, down from rates of 3-4% in previous reporting periods, 2) Unemployment, which had been at 5.1% in the last two quarters, increased this quarter to 5.9%, 3) The federal funds rate remained at 4.5%, unchanged in the last three meetings of the FOMC, 4) The business press reported that many commercial banks say they are “fully loaned up” now, 5) Wholesale prices were flat in the last quarter and inventory levels rose slightly, 6) Consumer confidence in the latest survey was unchanged from the previous quarter but down from six months ago. Given these data points what macroeconomic policy tools, monetary or fiscal, would you apply? Why would they work, or not? What historical precedents are there for using the tools you recommend? Would you change your recommendations if most of the nations of Europe were in recession?
Prepare your paper as described in the syllabus addendum. Be prepared to discuss your ideas in an “open forum” during class. Submit the paper to the portal and also submit a hard copy in class on the due date.