Assume that citizens in the United States have begun to be concerned about sliding into a recessionary period. The FOMC is scheduled to meet in one week. You have been asked by a newspaper to write an article that both describes the role of the Federal Reserve and predicts what policy actions the FOMC will take at their meeting. In addition, you have been asked to describe how their actions will affect the economy. Draw graphs if needed.

1. What is the FOMC?
2. What are the three tools that can be used by the FOMC, and how do you predict the FOMC would adjust each?
3. Which of the tools is the FOMC most likely to use?
4. How will the Federal Reserve's decision affect nominal interest rates? Use a graph to help explain.
5. How will this decrease in nominal interest rates affect investment? Explain.
6. How will the change in the level of investment affect aggregate demand? Explain.
7. How will this FOMC policy action affect the overall price level?
8. Using shorthand, draw an easy way to remember how the Federal Reserve's monetary policy affects GDP below.