Which of the following is the best approach for the Federal Reserve to eliminate the gap shown in the graph below? Price Level LRAS QE SRAS AD Real GDP O The Fed should buy bonds in the open market and raise the discount rate.

E 1.7 The hypothetical information in the table below shows what the values for real GDP and the price level would have been in 2019 if the Federal Reserve did not use monetary policy: 4¹ F3 Year 2018 2019 49 $ 4 a) If the Fed wanted to keep real GDP at its potential level in 2019, should it have used an expansionary policy or a contractionary policy? Should the trading desk have bought T- bills or sold them? b) Suppose the Fed's policy was successful in keeping real GDP at its potential level in 2019. State whether each of the following would be higher or lower than if the Fed had taken no action: R a. Real GDP b. Full-employment real GDP c. The inflation rate d. The unemployment rate c) Draw an aggregate demand and aggregate supply graph to illustrate your answer. Be sure that your graph contains LRAS curves for 2018 and 2019; SRAS curves 2018 and 2019; AD curve for 2018 and 2019, with and without monetary policy actions; and equilibrium real GDP and the price level in 2019 with and…

Suppose Federal Reserve wants to reduce money supply. How could Federal Reserve reduce money supply through the open market operations? Show your answers in a diagram. Your diagram should also show interbank loans. To reduce money supply, should Fed increase or decrease Fed funds rate? For the Fed Funds rate, who is a borrower? Who is a lender? For the discount rate, who is a borrower? Who is the lender?

Briefly describe the main policy tools that Fed use in conducting its monetary policy?

An economy begins in long-run equilibrium.   a. Consider the formulation of an oil cartel. Illustrate and explain how this affects prices and output over time. b. If the goal of the Fed is to stabilize the output, what should the Fed do with the money supply in response to this change? Illustrate and explain.

Explain how lowering the reserve requirement ratio by the central bank will affect the aggregate demand at any given price level. Use relevant graphs to support your answer.

Read the event The Federal Reserve raises reserve requirements. What would likely result from this event? A. An economy would see a slight decrease in aggregate demand. B. Interest rates on loans decline. C. Consumer demand would increase thus increasing prices. D. Inflation would reach levels that are acceptable for full employment.

1. What are the political and economic limitations upon (a) fiscal policy and (b) monetary policy?   2. What are the implications of a liquidity trap for the Federal Reserve?

Explain why the Reserve Supply is perfectly elastic at Discount Window Rate.

What action did the FOMC take, if any, regarding the level of the fedfunds rate? Why did it make this choice?