Discussion:
1. Describe the Fed's objective function and how it can be used with an economic model to evaluate alternative monetary policies.
2. Why didn't policy based on the Phillips curve work to help the Fed reduced the unemployment rate to a lower level than before? What happened in the 1970s as the Fed tried to take advantage of the tradeoff between inflation and unemployment?
"Monetary Policy" Please respond to the following:
• Discuss whether or not the Fed should use its policy tools to smooth out the business cycle (reducing output during economic expansion and increasing output during recessions). Explain your rationale.
"Policy Improvements" Please respond to the following:
• Discuss ways the Fed's objective function can be used with an economic model to evaluate alternative monetary policies. Provide specific examples to support your response.