Reference no: EM133344003

Monetary Policy

The Federal Reserve district banks conduct periodic surveys of businesses in their districts, and the findings are incorporated in the FED's Beige Book. These insights, along with the banks' quantitative analysis of business conditions, are important factors in their recommendations on monetary policy.

From your understanding of the ADAS model, an increase in aggregate demand puts upward pressure on prices and wages as the economy grows. Conversely, an economy in recession, experiences job losses and thus less demand for goods and services, particularly durable goods such as housing, cars and appliances.

In setting monetary policy, the FED looks at general trends in the economy. If employment is up and prices are rising, this may indicate pending inflation. To control inflation, the FED may start to raise interest rates - a contractionary monetary policy. An expansionary monetary policy, on the other hand, would lower interest rates in an effort to stimulate investment and spending in a sluggish economy .

For this week's discussion board, please read the Beige Book Summary, followed by section (K-1) which is the district summary for the Dallas FED - roughly 4 pages.

Discussion Topic: Based on the reading for the Dallas Fed, the 11th district bank, give your recommendation on monetary policy as President of the Dallas Federal Reserve Bank. Should interest rates be raised, lowered, or stay the same (neutral position)? Support your decision with specific findings from the report.