Question

The bullseye chart, developed by the Federal Reserve Bank of Chicago, is a visual comparison of the current state of the economy with the Fed's dual mandate of full employment and stable prices. A point representing actual unemployment and inflation is plotted on the chart and can be visually compared to the Fed's target point.

a. If the current point lies to the ________ of the center of the bullseye, the Fed's stance on monetary policy will be clear.

• northeast or southwest

• northwest or southwest

• northeast or southeast

• northwest or southeast

b. If the current point lies to the ________ of the center of the bullseye, the state of the economy will suggest opposite monetary policy stances.

• northwest or southeast

• northwest or southwest

• northeast or southwest

• northeast or southeast

Answer 1

a. Answer: Northwest or Southeast

In both the Northwest and Southeast quadrants, monetary policy that support progress toward one goal of either factor (i.e unemployment rate or inflation rate) also supports movement towards the other objective.

b. Answer: Northeast or Southwest

In both the scenarios, monetary policies contradict each of the two mandate's progress. In Northeast, A monetary policy intended to decrease inflation rate will increase the unemployment rate but we know that unemployment rate is already high, thereby contradicting each other's progress. Similarly, in southwest a contradicting scenario occurs.