1. In 1932 the US economy was experiencing a mild, garden-variety recession. The Federal Reserve decided to address this recession by raising interest rates. Explain the effect of raising interest rates did this action mitigate the recession of make it worse? Explain your answer. 2. Most people have heard of the Great Stock Market Crash of October 1929. In the eyes of many historians, that stock market crash led to the Great Depression of the 19303. The stock market also crashed in October 1987 indeed, in percentage terms, the crash of 1987 was much worse than the crash of 1929. In the days immediately after the crash of 1987, a group of 33 prominent economists from around the world met in Washington, D.C. and predicted that "the next few years could be the most troubled since the 1930s." But those economists were wrong. There was no Great Depression of the 19803, nor even a great recession. What do you suppose happened to prevent a recession after the stock market crashed in 1987? 3. On September 11, 2001, terrorists hijacked two airplanes and crashed them into the World Trade Center towers in New York City. Another set of terrorists hijacked an airplane and crashed it into the Pentagon building (the headquarters of the United States Department of Defense) near Washington, D.C. A fourth plan was hijacked and started toward Washington, D.C. but passengers on board that plane managed to overcome the hijackers and crash-land the plane in a field in Pennsylvania. The attacks caused widespread fear in the U.S., and there were concerns that those fears would reduce consumer confidence, and that consumers would thus reduce their spending. So, the Federal Reserve immediately bought government bonds. a. Explain the effect of an open market purchase by the Fed on interest rates. b. Use Aggregate Demand-Aggregate Supply analysis to explain the effects of this change in interest rates on GDP, unemployment, and inflation. c. Given your answer to part b, explain why the Fed bought bonds in September 2001. d. Explain what problems might be created by the Fed's open market purchase. 4. In 1980, the US was experiencing a high unemployment rate and also a high inflation rate. Explain what the appropriate monetary policy would be in that situation. 5. Recall the concept of crowding out - a federal government budget deficit financed by borrowing causes interest rates to rise. Currently the US has a large budget deficit and yet interest rates are very low. Explain how the Federal Reserve can offset the effects of budget deficits on interest rates. 6. During 2020 and 2021, the Federal Reserve kept interest rates very low. Explain why the Fed pursued this monetary policy