Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram must have all axes and curves clearly labeled and must show directional changes. If the question prompts you to “Calculate,” you must show how you arrived at your final answer. 1. Assume that the United States economy is currently in a recession in a short-run equilibrium. D. Assume that the Federal Reserve uses monetary policy to stimulate the economy. i. What open-market policy should the Federal Reserve implement? ii. Using a correctly labeled graph of the money market, show how the policy in part (d)(i) affects nominal interest rates. iii. What will be the impact of the policy on the price level? Explain. e. Now assume instead that the government and the Federal Reserve take no policy action in response to the recession. i. In the long run, will the short-run aggregate supply increase, decrease, or remain unchanged? Explain. ii. In the long run, what will happen to the natural rate of unemployment?
Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram must have all axes and
1. Assume that the United States economy is currently in a recession in a short-run equilibrium.
D. Assume that the Federal Reserve uses
i. What open-market policy should the Federal Reserve implement?
ii. Using a correctly labeled graph of the
iii. What will be the impact of the policy on the price level? Explain.
e. Now assume instead that the government and the Federal Reserve take no policy action in response to the recession.
i. In the long run, will the short-run
ii. In the long run, what will happen to the natural rate of
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