Consider the data for 2018-19, the Federal Reserve statement, and the Wall Street Journal articles. 1).Which of the following best describes the

Consider the data for 2018-19, the Federal Reserve statement, and the Wall Street Journal articles.

1).Which of the following best describes the economy as of February 2019? 

a.Unemployment is historically low, and output is above potential. Consumption spending is growing, though the moderation of investment spending growth has slowed the rise in aggregate demand. Fiscal policy is adding from aggregate demand growth. In this situation inflation is a threat, and the inflation rate is beginning to rise. So far the interest rate spread has not responded to the Fed’s monetary policy, so the Fed plans to continue to increase the federal funds rate in 2019.

b.Unemployment is historically low, and output is below potential. Consumption and investment spending have moderated, and the contractionary fiscal policy is reducing aggregate demand. In this situation inflation is a threat, and the inflation rate is beginning to rise. So far the interest rate spread has not responded to the Fed’s monetary policy, so the Fed plans to continue to increase the federal funds rate in 2019.

c.Unemployment is historically low, and output is above potential. Consumption spending is growing, though the moderation of investment spending growth has slowed the rise in aggregate demand. Fiscal policy is adding to aggregate demand growth. In this situation inflation is usually a threat, but so far inflation has not increased. The interest rate spread has responded to monetary policy, so the Fed has decided to stop increasing the federal funds rate for now.

d.Unemployment is historically low, and output is below potential. Consumption and investment spending have moderated, and the contractionary fiscal policy is reducing aggregate demand. In this situation inflation is usually a threat, but so far inflation has not increased. The interest rate spread has responded to monetary policy, so the Fed has decided to stop increasing the federal funds rate for now.

2). Consider the Federal Reserve statement in the press release, included on the worksheet linked on the Module 3 Assignments page.

What action did the Federal Open Market Committee take on January 30, 2019?

a.The FOMC left the federal funds rate unchanged.

b.The FOMC raised the federal funds rate a quarter point, which is a contractionary monetary policy.

c.The FOMC raised the federal funds rate a quarter point, which is an expansionary monetary policy.

d.The FOMC lowered the federal funds rate a quarter point, which is a contractionary monetary policy.

e.The FOMC lowered the federal funds rate a quarter point, which is an expansionary monetary policy.

3). From the Federal Open Market Committee statement, consider the Fed’s statutory mandate, also known as its dual mandate. Which of the following best describes the Fed’s policy goals under its mandate?

a.An inflation rate near 0% (stable prices) and output equal to potential, which means an unemployment rate of about 5%.

b.An inflation rate near 2% and output above potential, which means an unemployment rate less than 5%.

c.An inflation rate near 0% (stable prices) and output above potential, which means an unemployment rate less than 5%.

d.An inflation rate near 2% and output equal to potential, which means an unemployment rate of about 5%. 

Federal reserve statement:

Information received since the Federal Open Market Committee met in December indicates that the labor market has continued to strengthen and that economic activity has been rising at a solid rate. Job gains have been strong, on average, in recent months, and the unemployment rate has remained low. Household spending has continued to grow strongly, while growth of business fixed investment has moderated from its rapid pace earlier last year. On a 12-month basis, both overall inflation and inflation for items other than food and energy remain near 2 percent. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 2-1/4 to 2- 1/2 percent. The Committee continues to view sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective as the most likely outcomes. In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes. In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments







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