1.If the target inflation rate is 3 percent and the actual rate of inflation falls below the target rate,

A. the AD curve will shift to the right.

B there will be an upward movement along the AD curve.

C.There will be a downward movement along the AD curve.

D.the AD will not shift, nor will there be a movement along the AD curve.

E.the AD curve will shift to the left.

2.

In order for the Fed to respond correctly to changes in the inflation rate, the slope of the monetary policy rule line (showing the relationship between the inflation rate and the real interest rate) must be

A.greater than 1.

B. less than 1.

C.greater than zero.

D.equal to 1.

E.negative.

3.When the Fed wants to raise nominal interest rates, it

A.increases bank reserves.

B.orders all banks to increase interest rates.

C.recommends that Congress raise the federal funds rate.

D. recommends that Congress conduct open market operations.

E.sells government bonds.