Scenario 1: Suppose the economy is operating at potential GDP. Unemployment is 5%, Inflation is running at 11% and the Federal Funds Rate is 8%. In scenario 1 above. What do you think the central bank should do for policy?
a. Raise the Federal Funds Rate to decrease the nominal interest rate
b. Raise the Federal Funds Rate to increase the real interest rate
c. lower the Federal Funds Rate to decrease the real interest rate
d. lower the Federal Funds Rate to increase the nominal interest rate
e. lower the Federal Funds Rate to increase the real interest rate