Answer to Question #60275 in Macroeconomics for Michele Herzog

Question

Two important policy goals of the government and the Fed are to keep unemployment and inflation low, while at the same time making sure that GDP is increasing at an average of 3% per year. It is important to have the right mix of policies and that all the variables be timed perfectly.

Part 1: Assume that the country is in a period of high unemployment, interest rates are at almost zero, inflation is about 2% per year, and GDP growth is less than 2% per year.

Answer 1

In the described case macroeconomic indicators are significantly lower than those planned. Therefore, significant measures of economics’ stimulation are needed.