Download In the given situations, explain what actions the

WHAT SHOULD THE FED DO?
In the given situations, explain what actions the Federal Reserve would probably take to
regulate the money supply.
1. The consumer price index and the average wages have increased dramatically
over the past 12 months.
2. Average growth in the economy has remained constant for the fast 2 years and is
stable.
3. Consumer spending, factory owner, and employment are drastically low.
4. The economy is growing slowly and inflation is under control.
5. The inflation rate has doubled over the past two years.
6. The economy is growing steadily and inflation is within the range of
acceptability.
7. The unemployment rate is rising dramatically.
Which monetary policy would the following people most like the government to follow?
1. Elderly retired married couple on a fixed income.
2. Recently graduated individual looking for a new job
3. Construction companies
4. Individuals trying to buy their first house.
5. Companies trying to expand their business.
6. Car dealers.
WHAT SHOULD THE FED DO?
Answers:
1. tight money policy including raising interest rates, raising reserve requirements,
selling securities
2. Nothing. The economy is stable and the fed should not intervene in the market
3. easy money policy including lowering interest rates, lowering reserve
requirements, buy securities
4. easy money policy including lowering interest rates, lowering reserve
requirements, buy securities
5. tight money policy including raising interest rates, raising reserve requirements,
sell securities
6. Nothing. The economy is stable and the fed should not intervene in the market
7. Easy money policy including lowering interest rates, lowering reserve
requirements, buy securities. Want to increase production and growth
Which policy?
1. tight money. They are on a fixed income and cannot afford inflation.
2. easy money. The more businesses that are expanding, the more likely I can get a
job. The lower the interest rates, the better chance I can get a loan to get started.
3. easy money. The construction businesses need people to be able to purchase
houses and big items which need loans.
4. easy money. I need lower interest rates to purchase the large item.
5. easy money. I need lower interest rates to purchase the large items needed in
expansion.
6. easy money. I want people to purchase cars and need low interest rates for that to
occur.