The Federal Reserve is considering its policy options. Current economic conditions:

• Unemployment rate: 8%
• Inflation rate: 1%
• Federal funds rate: 2%
• GDP growth: -1%

a) Should the Fed adopt a dovish or hawkish stance? Explain your reasoning. (6 points)

Policy stance: __________________________________________________________

Reasoning: ____________________________________________________________

b) What specific monetary policy tools should the Fed use? List three and explain how each would help. (6 points)

Tool 1: ________________________________________________________________

How it helps: __________________________________________________________

Tool 2: ________________________________________________________________

How it helps: __________________________________________________________

Tool 3: ________________________________________________________________

How it helps: __________________________________________________________