Question

You must write a calm, rational response to the president’s angry letter. In this letter, you
must include each of the following (though not necessarily in this order):
 Explain why the Fed would believe that a contractionary monetary policy is necessary.
In other words, something would need to be happening in the economy to cause the
Fed to switch to a contractionary policy. Determine what could cause this and give
that as your explanation for why contractionary policy is necessary.
 Explain to the president how each of the three tools of the Federal Reserve could be
used in a contractionary way to decrease the money supply. (As a reminder, the three
monetary policy tools of the Fed are: open market operations, changing interest
rates, and changing reserve requirements.)
 Let the president know which one of the three tools of the Fed you intend to use first to
slow down the economy and why you have chosen that tool instead of the other two
options that are available.
Yes, this is your choice. There isn’t a “right or wrong” choice here (as long as you
are choosing one of the three contractionary options that are available to the Fed),
but you must explain yourself in a clear, logical way!

Answer 1

Explanation:

You must write a calm, rational response to the president’s angry letter. In this letter, you

must include each of the following (though not necessarily in this order):

 Explain why the Fed would believe that a contractionary monetary policy is necessary.

In other words, something would need to be happening in the economy to cause the

Fed to switch to a contractionary policy. Determine what could cause this and give

that as your explanation for why contractionary policy is necessary.