• Explain how monetary policy impacts economic activity.
• Use a graph/chart to show the effects of a contractionary monetary policy to reduce inflation and move an economy back to potential real GDP.
• Explain what happens to aggregate demand, real GDP, and the price level.

2. Exchange rates affect the prices of exported and imported products. Fluctuating exchange rates can also alter a multinational firm's profits and losses. The U.S. corporation, Motorola, produces cell phones and sells cell phones in Mexico.

• What would happen to Motorola's costs and revenues if the dollar appreciated against the peso?