Reference no: EM131308900

1. Describe the Fed's tendency to "lean against the wind." Do the Fed's policies tend to stabilize or destabilize the economy?

2. [Related to the Economics in Practice on p. 261] In August 2010, the Fed's discount rate was 0.75 percent and the federal funds rate was 0.25 percent, with a Fed target of 0-0.25 percent. The Economics in Practice states that all of the major investment banks employ economists to help them forecast what the Fed will do, and in mid-2010, many of these economists pushed back their expectations of when the Fed would raise interest rates, citing lower-than-anticipated inflation expectations, slow job growth, and an overall weak economy as reasons for the delay in rate increases. Go to www.frb.gov, www.bea.gov, and www.bls.gov to see what has happened to interest rates, the inflation rate, the unemployment rate, and GDP since August 2010. Were the economists' forecasts of the Fed delaying interest rate increases until 2011 correct? Describe any apparent correlation between the changes in interest rates and changes in the inflation rate, the unemployment rate, and GDP since August 2010.