You Have Been Asked to Spend a Week or So

Essay

You have been asked to spend a week or so as the Fed chairman. It will turn out to be a very interesting week. If your goal is to stabilize inflation and economic activity, what would be your response to the following three events? Consider each event individually, independent from the others:
(a) a rapid rise in the stock markets rapidly increases people's wealth;
(b) Chilean citizens get a sudden taste for Buffalo hot wings (they must be made in Buffalo); and
(c) firms begin to grow anxious about the decline in consumer confidence.