Question

Assume the following data for the economy in the United States:

• Inflation is at 4.5% and has been rising for the last 3 years from a low of 1.2%
• Unemployment is at 4.0% and has been falling for the last 6 years from a high of 7.8%
• The GDP is at $15.36 trillion and has been growing at about 3% for the last 7 years.


Answer the following questions using the data above. EXPLAIN ALL YOUR ANSWERS IN DETAIL.


1. What problem is the economy facing?

Answer 1

1. The economy is facing a period of rise, because GDP rises, the level of unemployment falls. But as inflation increases, then the inflationary gap may be created, so there may be a need in contractionary policy.