Chapter 17, Problem 1FCT

To determine

Why would the Fed likely have faced difficulties in its effort to combine activist and passive policymaking if the inflation rate had increased substantially while the unemployment rate remained above the Fed’s threshold employment rate?

Introduction:

Fed controls the monetary policy by increasing or decreasing the money supply by two ways either by printing more money or by trading government securities. These monetary policy further affects the factors like the interest rate, unemployment rate, inflation rate, deflation rate and the price level. These rate are major factors that influence the growth in our economy and also affects the decisions of the public. These policies are owned and controlled by the government.