1) Let the following situation. On November 1, 2013 incoming Federal Reserve, Chairperson Janet Yellin states unhappiness to NY Times with disappointing employment outcomes of targeting Federal Funds Rate. She proclaims that Fed will soon set the target based on Prime Rate instead. Target for Prime Rate will be 80 basis points below present published WSJ Prime Rate.
a) How has unemployment rate been affected over past two years by Fed’s policy of quantitative easing? Be specific.
b) What will be Feds target for Prime Rate? What do you think will be results on employment of using this new target for monetary policy?
c) describe pros and cons of using each major tool of monetary policy in attaining and managing this Prime Rate target? What tool(s) do you suggest to Fed Chairperson Yellin?