Reference no: EM13173640

Economic Scenario:
The U.S. is in recession and, at last report, GDP was shrinking at a rate of 1% per year.

The unemployment rate is rising and now stands at 7%.

In recent months, the rate of inflation has been holding steady and is increasing at an annual rate of 1.5%.

NAIRU has recently been calculated as 5%.

Consumer confidence is falling.

The Fed has decreased short-term interest rates twice in the last 6 months by one-half of a percentage point.

Exports are continuing to fall as Europe and Asia also fall into recession.

The federal budget has been in surplus for the past 2 years.

The Chairman of the Federal Reserve has promised to work with the new President.

Imagine you have been elected President of the U.S. at a time when the above scenario holds true. You have promised during the campaign that turning this situation around will be your number one priority. Explain what policies you would recommend to accomplish this. Would you emphasize monetary policy or fiscal policy in your policy mix? Explain. Are there any downside risks in the policy you are recommending?