Produce an evidence-based business report (3-5 pages) that makes fiscal and monetary recommendations to combat the high level of inflation impacting the hypothetical economy in this scenario.
This assessment will prompt you to produce a business report that makes well-supported fiscal and monetary recommendations to combat high levels of inflation impacting the hypothetical economy presented in the scenario.
Inflation is a situation whereby there is an increase in the general level of prices for services and goods in a country. Inflation causes a fall in the purchasing power of money. The most widely reported measure of inflation in the United States is the consumer price index (CPI). The CPI calculates the overall change in the price of goods and services for an average person’s budget. Inflation has been low for a number of years after the Great Recession. The Federal Reserve has a particular focus on trying their best to make sure inflation does not get out of hand. Inflation rates go in cycles; thus, although inflation may have been low recently, that does not mean that inflation will never return to the double digit inflation rates seen during the 1970s and early 1980s.
You are again an economic analyst at a large and influential investment firm. The firm’s opinions influence clients directly but also indirectly influence others within the economy, including legislators, policy makers, and other actors and advocates. Your direct supervisor was impressed with a recent report you submitted that performed recession analysis. She has requested that you create a similar business report that makes well-supported fiscal and monetary recommendations to combat the high level of inflation impacting a hypothetical economy. Your report will be distributed to other analysts and consultants within the firm, who will use your recommendations to advise clients.
You are an economic analyst at a large and influential investment firm.
Address the following in your business report. Where applicable, discuss multiple and even conflicting perspectives as you provide the richest context possible for your colleagues at the investment firm.
- Analyze the relationships among monetary policy, interest rates, and inflation.
- Identify assumptions that underlie these relationships.
- Explain how specific fiscal and monetary policy changes may impact a U.S. economy experiencing high inflation.
- Fiscal policy changes may include increasing taxes and decreasing government spending.
- Monetary policy changes may include increasing interest rates and decreasing the money supply through open market operations.
- Assess which theory is most applicable when addressing the term structure of interest rates: the Expectations Theory, the Liquidity Preference Theory, or the Preferred Habitat Theory.
- Explain the assumptions that inform each theory.