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2. A change in the level of imports will impact the macroeconomy. Here we will model an decrease in imports, holding all else constant, using the AD-AS and look at how monetary d. Assume the Federal Reserve decides to take action to try and move the economy back policy can try and smooth out the business cycle. Our shock in this question will be: to long-run macroeconomic equilibrium. What are the three ways they would do this imports decrease, holding all else constant. using the old tools? Let's start with assuming the US was producing at the full-employment level of output (Yp) with an arbitrary price level (P) before the increase in imports. a. Represent the US economy at this point with an aggregate demand-aggregate supply graph. Label this initial equilibrium as point A. e. What are the two ways they would do this using the new tools? f Would this be expansionary or contractionary monetary policy? g. Show how this policy affects the AD/AS model in part a. Label this new point as point 3. How does the economy experience stagflation and why is it difficult for the Federal Reserve to respond? Be sure to address the dual mandate in your response. 4. What is the difference between a monetary policy dove and a monetary policy hawk? 5. What are the four monetary policy limitations mentioned in this lesson? b. Imports decrease like mentioned above. Assuming this was the only change in the economy, show how this affects the short run equilibrium in your diagram in part a. Label this new point as point B. c. According to your diagram, is this economy in an expansion or a recession? Explain