Critically possible short-run and long-run macroeconomic

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Relationship Between Public Debt and Interest Rates

On March 28th, 2006 the Fed increased its federal funds rate target from 4.50% to 4.75% for the 15th consecutive increase since late 2003. The primary objective of the Fed is to keep a balance between higher expected inflation and interest rates and their impact on sustained economic growth in the long run.

Briefly and critically describe possible short run and long run macroeconomic effects of this continuous increase of the federal fund rate target by the Fed in controlling inflation and money supply growth in the economy since 2003. The response to this question should be focused on the effects on unemployment, inflation, short term and long term yields on treasury securities, and economic growth.

Is this policy consistent with the discretionary monetary policy implications of Keynesian monetary theory? If so, how does it differ from the policy prescription of the monetarists under the similar economic situation that US economy is currently facing?

Reference no: EM1326830


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