Assume that the United States economy is currently in equilibrium at the full-employment level of real gross domestic product.

(a) Draw a correctly labelled graph of aggregate demand and aggregate supply showing each of the following in the United States:

(i) Output level

(ii) Price level

(b) South Koreais a major importer of United States products. Assume that theKoreaneconomyis booming and outpacing the economy of the US

(i) Explain the impact of theKorean economic boomon the United States equilibrium output and price levels.

(ii) Show these effects on your graph in part (a).

(c) Assume that the Federal Reserve takes action to curb the effects of the Korean economic growthon the United States economy.

(i) What open-market operation would the Federal Reserve undertake?

(ii) Use a correctly labelled graph of the money market to show how the Federal Reserve policy action will affect the nominal interest rate.

(iii) Explain how the change in the nominal interest rate in part (c) (ii) will affect aggregate demand, price level, and real output in the United States.

(d) Define the real interest rate.

(e) Indicate the effect of the open-market operation you identified in part (c) (i) on the real interest rate in the United States.