Constructing Monetary Policy

It is Christmas of 2000 and our nation is facing exciting times. The United States just
elected a Republican president; this will change the balance of power in Washington and
determine who will be the new heads of government agencies. The unemployment is 4%
and retail stores can not keep shelves stocked.
1. Draw a generic business cycle. Label the phase in which the scenario is occurring.
2. What economic problem is the economy facing? ________________________________
3. What type of monetary policy did you implement? ______________________________
4. What monetary policy action could the Federal Reserve take to correct the problem?
a. _________________________
b. _________________________
c. _________________________
5. By doing this, the Federal Reserve is trying to _______________ the money supply.
6. This type of monetary policy would cause banks to __________ lending to consumers.
7. How does the change in lending in #6 affect the money supply?



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