1.1.If the required reserve ratio is 100 percent, could the Federal Reserve still change the money supply with open market operations? Explain whether it could or could not.

2.2.When aggregate supply shifts cause the economy to enter a recession similar to the Great Recession, explain why monetary policy is much less likely to restore the economy to its prerecession conditions than if the recession was caused solely by a decrease in aggregate demand.

3.3.Consider a hypothetical economy in which policy makers have never used inflation to try to stimulate the economy. Let's say that inflation is 0 percent and market participants expect 0 percent inflation going forward. In addition, the natural rate of unemployment is 6 percent.

a.Draw a diagram representing the short- and long-run Phillips curves with expected inflation and actual inflation on theyaxis and the unemployment rate on thexaxis.

b.Show what happens in the short run if the central bank of this economy decides to enact policy that raises the inflation rate to 3 percent.

c.Because the inflation rate is 3 percent, market participants expect a 3 percent inflation rate. Show what impact this has on the short-run Phillips curve.

d.Discuss how this demonstrates the long-run Phillips curve.

4.4. One of the roles of the Federal Reserve is to regulate banks. What specifically does the Federal Reserve monitor within individual banks? Provide two reasons why it is important to regulate banks even though they are private businesses.