The International Monetary Fund urged the U.S. Federal Reserve to delay raising short-term interest rates until 2016, arguing that acting too soon could stall the U.S. economy, especially in the wake of recent global turmoil. Students learn about the dangers raised by the IMF about implementing contractionary monetary policy too soon given current domestic and global conditions. More generally, you can weigh the pros and cons of the Federal Reserve raising interest rates in 2015 using a short-run macroeconomic framework.
1.What is the IMF? What are its responsibilities?
2. (i) What warning did the International Money Fund make this week concerning U.S. monetary policy? (ii) When does the IMF want the Fed to start raising interest rates?
3. What specific reasons did the IMF give for its recommendation? In other words, what negative consequences does the IMF believe will result from the Federal Reserve’s upcoming action?
4. Is the IMF more worried about the effect of the Fed’s monetary policy action on the U.S. economy or on the global economy? Support your answer.
5. What is the main goal of the U.S. Federal Reserve’s upcoming monetary policy action?
6.Explain how the central bank’s action would affect U.S. unemployment and inflation in the short run. Include a well-labeled figure (the aggregate supply/demand model) with your explanation.
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