Occasionally, the Federal Open Market Committee (FOMC)

sets a policy designed to “track” the interest rate. This means that the FOMC is pursuing policies designed to keep the interest rate constant. If, in fact, the Fed were acting to counter any increases or decreases in the interest rate to keep it constant, what specific actions would you expect to see the Fed take if the following were to occur? (In answering, indicate the effects of each set of events on Y, C, S, I, Ms

, Md, and r.)

a. An unexpected increase in investor confidence leads to a sharp increase in orders for new plants and equipment.

b. A major New York bank fails, causing a number of worried people (not trusting even the FDIC) to withdraw a substantial amount of cash from other banks and put it in their cookie jars.