1. In the short? run, if the Fed wants to raise the federalfunds? rate, it A. instructs the New York Fed to sell governmentsecurities in the foreign exchange market. B. tells largecommercial banks to raise their interest rates. C. instructs theNew York Fed to buy government securities in the open market. D.instructs the New York Fed to sell government securities in theopen market. E. instructs large commercial banks to sell governmentsecurities in the open market.

2. In the short? run, when the Fed increases the federal fundsrate A. the real interest rate is unaffected but investment stilldecreases. B. the real interest rate falls and investmentincreases. C. there is no effect on investment because investmentdepends on the real interest rate. D. the real interest rate risesand investment decreases. E. the real interest rate rises andinvestment does not change.

3. If the Fed wants to fight? inflation, it will? ________ thefederal funds rate in order to? A. ?raise; decrease aggregatesupply B. ?raise; decrease aggregate demand C. ?lower; increaseaggregate supply D. ?raise; increase aggregate supply E. ?lower;decrease aggregate demand