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Save & Exit Managing the Economy with Monetary Policy In this exercise you will be evaluating the economic condition of the country and making decisions in order to keep the economy level. The amount of money in circulation has a tremendous effect on the economy and inflation. Imagine if you found $100,000 in cash floating around your front yard. What would you do with it? More than likely, you would spend quite a bit of it on goods and services. If everyone had this extra money, then they would likely do the same. How would this impact the economy? What would it do to interest rates and inflation? How does the Federal Reserve control this phenomenon that occurs? The Federal Reserve uses monetary policy in order to try and keep the economy in check. In this exercise, please read the mini-case and answer the questions that follow, Shelley is the Chairman of the Federal Reserve. She is in charge of making decisions for the Fed that will impact the economy in the country, and she must make her decisions from current market data, An economy that is growing too fast could be detrimental as it could lead to high inflation and devaluing of the currency, but an economy that is sluggish will cause unemployment to rise. Shelley is faced with a current unemployment rate of 4.7%. This rate, coupled with an inflation rate over the last year of 5.4%, causes Shelley to take action. The Fed is currently offering a discount rate of 18%, and the market interest rate on one-year investments is averaging 2.3%. After meeting with the president, Shelley learns that the administration does not want to raise taxes, as it fears this could hurt its public image in the year prior to elections: The president has been making frequent public statements that the economy has been doing very well the past couple years and the dollar has been strong. As the president is shying away from using fiscal policy to slow the economy, it is now up to you to use monetary policy.Shelley should: Multiple Choice O slow the economy. 48 O ask the president to cut taxes. O stimulate the economy