Sample problem: monetary policy
The Federal Open Market Committee (FOMC) of the Federal Reserve Board meets every six weeks to set monetary policy in the United States. Immediately after the meeting, the FOMC issues a â??statementâ? that consists of a few paragraphs summarizing its position. Then, three weeks later, the FOMC releases the â??minutesâ? of its meeting. These minutes contain extensive detail about the issues that were discussed in the meeting.
Suppose your job is to describe Federal Reserve policy to the CEO of a corporation. Go to the following web page and read the minutes from the FOMCs meeting on August 10 (which was released on August 31). Then answer the problems below.
a. What action did the FOMC take, if any, regarding the level of the fed funds rate? Why did it make this choice?
b. Pick a paragraph or two from the FOMC minutes and quote it in your answer (so I know which paragraph youâ??ve chosen). Using the Short-Run Model, describe the economic consequences of the events in the paragraph(s) youâ??ve quoted. You do not need to analyze anything else in the economy; just focus on what youâ??ve chosen.
c. Pick one other thing that is mentioned in the minutes that you do not understand (for ex, a term you are unfamiliar with). Do some research to discover its economic significance, and describe it in two or three sentences.