1. Which aggregate supply curve in Figure 14.7 does the Fed chair fear the most? Why?

2. Suppose the Federal Reserve decided to purchase $50 billion worth of government securities in the open market.

a. By how much will M1 change initially if the entire $50 billion is deposited into transactions accounts?

b. How will the lending capacity of the banking system be affected if the reserve requirement is 10 percent?

c. How will banks induce investors to utilize this expanded lending capacity?

RATE OF OUTPUT (real GDP per time perlod) (b) The monetarist view RATE OF OUTPUT (real GDP per time period) (c) An ecloctic view