The last five months has seen inflation rising at a faster rate. Five months ago inflation was rising at an annual rate of 2%. Now 5 months later, the annual rate is over 20%. The highest in 35 years. Retail sales are strong with monthly increases of at least 4%. Car sales have been up every month for the last year. The average increase in car sales has been 5% per month the highest in 20 years. The housing market is booming with monthly increases in sales of new homes of over 4%. Unemployment is 2.8% and falling. Most economists believe the unemployment rate is below the natural rate of unemployment of 4.5%. Most businesses have almost no inventories due to the booming economy. The money supply has been increasing at an annual rate of 10%. Answer the following below:
1. The problem in the economy, if any (Describe from the information given in the paragraph, why you chose that particular problem).
2. The monetary and fiscal policy to be used;
3. The tools of the policy and how they work to correct the problem;
4. Any undesirable consequences that may arise when the Fed and/or the federal government implement the policy.
5. In your discussion please discuss the branch of the government that will implement each of these policies (Federal government or Federal Reserve).
