Answer to Question #277129 in Macroeconomics for Tenn

Question

Suppose the Fed were required to conduct monetary policy so as to hold

the unemployment rate below 4%, the goal specified in the

Humphrey–Hawkins Act. What implications would this have for the

economy?

2. The statutes of the recently established European Central Bank (ECB)

state that its primary objective is to maintain price stability. How does

this charter differ from that of the Fed? What significance does it have

for monetary policy?

3. Do you think the Fed should be given a clearer legislative mandate

concerning macroeconomic goals? If so, what should it be?

Answer 1

Solution:

According to the Humphrey-Hawkins Act, the rate of unemployment must be below 4% which can only be achieved by incentivizing and mobilizing corporates. This will lead to hyperinflation and higher levels of unemployment.

2.).No, the Fed should not be given a clearer legislative mandate.

The economy is a complex organism with many intertwined relationships. As a result, policy

decision may sometimes result in unexpected and/or unintended consequences. To account for

all this complexity policy makers are given the opportunity to exercise a degree of subjectivity

when necessary. If the mandate is made clearer, this opportunity would be taken away, which

may force policy makers to adopt policies they feel are not the best suited for the economic

conditions, and possibly result in undesirable long-term outcomes.