8 Points. In 2022, high inflation caused the FED to intervene to meet its mandate. Explain step by step how increased US interest rates were meant to reduce US inflation. 8 Points. Has the FED policy worked? Be specific and identify any resulting changes in the inflation rate, as well as changes in associated key variables that indicate if the FED policy has / has not worked so far. 9 Points. As the FED raised US interest rates, state the relevant interest parity equation to explain capital flows between Europe and US, and explain how these flows affect the value of the dollar. 2 Points. The Eurozone presents an interesting test for interest parity. Countries in the Eurozone share fixed exchange rates (indeed a common currency). What does interest parity imply about the interest rates in countries that are members of the Eurozone? State the interest parity equation and manipulate it to prove your