Answer the following questions at a 10th grade level.
The Fed and Monetary Policy
Analysis and Comparison to Fiscal Policy
Step 1: Analyze each scenario. Answer the questions in complete sentences.
Scenario A
College graduates are moving back in with family in record numbers. They are waiting longer than previous generations to buy homes and start families. Data show downward trends in new home building, mortgage applications, and the birthrate. Multiple markets are complaining of falling demand. A national supplier of home goods permanently shut down. The media is calling babies born today part of the “baby bust generation.” Economists predict future school closings and labor shortages. Would the Fed address the scenario with expansionary or contractionary policy? Explain.
What is a specific monetary action the Fed might use in this scenario? Identify the tool and how the Fed would use it. Explain how this would address the scenario.
What is a specific fiscal action that Congress might use in this scenario?
Scenario B
Reports of price increases for everyday goods begin to dominate the news. People are complaining that their wages and salaries are not keeping pace with the cost of living. Most people being interviewed have jobs, and the national unemployment rate is low. However, many commonly remark that they are looking for second jobs or jobs that pay more because basics like food and clothing cost them so much more than a year ago. Would the Fed address the scenario with expansionary or contractionary policy? Explain.
What is a specific monetary action the Fed might use in this scenario? Identify the tool and how the Fed would use it. Explain how this would address the scenario.
What is a specific fiscal action that Congress might use in this scenario?
Scenario C
The media report that an “epidemic of the jobless” has emerged. Major corporations and small businesses alike are laying off workers. People are out of work in record numbers and struggling to find jobs. Some admit that they have given up looking. Housing foreclosures are increasing, while banks say they lack the funds to approve new loan applications or to adjust existing loans. Requests for unemployment, housing, and nutrition assistance are at record highs. Charity organizations are not receiving enough donations to meet the growing need in their communities. Credit card companies say the average debt balance is climbing while repayments are falling behind. Would the Fed address the scenario with expansionary or contractionary policy? Explain.
What is a specific monetary action the Fed might use in this scenario? Identify the tool and how the Fed would use it. Explain how this would address the scenario.
What is a specific fiscal action that Congress might use in this scenario?
Step 2: Which type of policy, fiscal or monetary, do you think is more effective in today’s U.S. economy? Explain your perspective, referencing an event from within the past 10 years. Write at least one complete paragraph.
Step 3: Check and then submit your work.
