The Federal Reserve has various tools to influence the economy in the short-term.
A- Explain, using the AS/AD model and words, how buying bonds from banks and the public would influence the economy. Include in your answer if this is an appropriate policy for periods of inflation or a recession. (5 points).
B- The FED could have used other tools to influence the economy in a similar way. List 2 other tools that could have been used in this situation that would have led to the same (or similar) impact. (3 points)
C- Let’s say that the President decides he doesn’t like the FED’s actions and orders them to stop. What would the likely outcome of this request be? (3 points).
D- Assume that the natural rate of unemployment for the US economy is 4%. If the unemployment rate is at 1%, what’s the FED likely to do and why? (3 points). Be specific in your answer.