Assume the United States economy is operating at less than full employment.

1.Using a correctly labeled aggregate demand and supply graph, show

a.Full employment output (yf)

b.Current output (Q1)

c.Current price level (PL1)

2.What are The Fed's three policy choices for how to get the US back to full employment?

3.Using a correctly labeled graph of the money market, show how the open market operation you identified in #2 will affect the interest rate in the short run.