2. The Monetary Policy Suppose the economy is in a recession. (3] What instruments can the Central Bank use in order to improve the situation and what must be the change in each of these instruments? Explain, how the change in each instrument will affect: (1') the commercial banks' reserves; (ii) the monetary base; (iii) the money multiplier; (iv) the money supply. (b) Assume the Central Bank chooses to undertake an open market operation. Show the changes (i) on the graph in the (monetary base H money supply M) space; and (ii) on the money market graph. (0) Explain the rst and the second round effects of the Central Bank's action on each of the following in the short run. (i) Bonds prices (ii) Interest rate (iii) Investment (iv) Aggregate planned expenditures (v) Components of aggregate demand (vi) Real output (vii) The price level Use appropriate graphs (of the money market, the bonds market, the investment demand curve, the Keynesian cross, and AD-AS) to illustrate these effects. (Hint: Use an aggregate supply curve with a positive slope)