Final Project: Sample Policy Memo

The date is 05/20/2021. You were hired six months ago by your congressional representative as a policy advisor. Your boss has been very impressed with your insight and research, and has promoted you to be the primary economic policy advisor!
As you are reading the economic news today, you come across the following headline: “Consumer Confidence is Booming, But Continued Wage Growth Sparks Concerns over Costs”. The article is discussing how surveys of consumers show they are very eager to buy, and as a result investment spending by businesses has skyrocketed. However, the increase in output that has put some pretty heavy demands on the labor market, and a shortage of workers has started to cause wages to increase. This appears to be leading to a cycle: more spending by consumers leads to more investment spending, which leads to higher wages, which leads to more spending. Inflation is becoming a major concern.
You go out and collect the following information:
Macroeconomic Indicator Value of the indicator Source of the Indicator
Current output $4.72 Trillion Congressional Budget Office (“CBO”)
Est. full employment output $4.5 Trillion CBO
Current rate of unemployment 3.4% Bureau of Labor Statistics (“BLS”)
Est. natural rate of unemp. 5.5% CBO
Current inflation rate 5.5% BLS
Target rate of inflation 2% Federal Reserve
Current Fed Funds rate 2.1% Federal Reserve
Current MPC 0.75 CBO
Current Reserve Requirement 5% Federal Reserve
Your congressman is concerned about the current state of the economy. Your job is to prepare a Policy Memo to fully brief your congressman about the current state of the economy. Your Policy Memo should 1) explain the current state of the economy, 2) Identify both a fiscal policy solution and a monetary policy solution, 3) describe the potential down-side to those policy solutions, and 4) make a final policy recommendation.