With the campaign’s first debate coming up, Judy McGovern needs advising on her economic policies. She knows that questions about recent decisions by the Federal Reserve (“the Fed”) are going to come up in the debate, but she isn’t very well informed about what these decisions mean. As part of the economics team, you are responsible for writing a report that explains some of these important issues.
Write a report that explains the important background concepts to Ms. McGovern. The report should be written so that someone without much knowledge of economics could understand it. Be sure to address all of the following issues in your report:
Explain the background concepts of:
real GDP.
inflation.
unemployment.
Explain the concepts of aggregate supply and aggregate demand, including recessionary and inflationary gaps.
Explain what the Fed does. Use the above background concepts in your explanation, and answer the following questions:
What is the Fed’s “dual mandate”?
What tools does the Fed use to achieve its goals?
What happens when the Fed pursues an expansionary or contractionary policy?
To provide Ms. McGovern with examples of the Fed’s work, include a summary of the two news articles in the report. For each article, explain the main ideas presented, the evidence given to support these ideas, and the conclusions.
