Eco 101 Theory and History Paper June 17 9.00 am 2050

Q.1 Solve the following economic dilemma.

"US unemployment rose 0.5 per cent last month; US home sales and house prices are in free fall, and not expected to bottom for 18 months; high energy prices are dampening consumer spending and axing confidence levels. If Bernanke raised interest rates in this environment Americans would send out a lynching party. More seriously any increase in interest rates would crash the bond and stock markets.
Indeed, it is far more likely that the pressure will come in the other direction, either this autumn or early next year. Bond prices look expensive against surging inflation, while corporate profits are being squeezed by inflation threatening stock valuations. Both the stock and bond markets are set up for a crash, and that would mean lower and not higher interest rates."

What really went on there?

We only have this excerpt. . .

". . .This problem struck at the centre of what made capitalism a distinctive economic system. Its inherent competitiveness, whilst a motor of innovation and productivity, dooomed its macroeconomic workings to insoluble contradictions resulting ultimately in the catastrophic events of that famous Summer. . ."