1. Many people believe trade deficits are a serious problem and need to be eliminated.

a) Explain the three actions the Fed could take to reduce the trade deficit in the United States, and explain carefully how these actions would result in a reduced trade deficit.

b) What effect would these three actions from part i of the question have on GDP? Describe the effects on each of the components of aggregate demand. Include an AD/AS graphical analysis of your answer.