Please help with part 1

questions C and D

thank you

Question 2 - Monetary Policy in the short run and long run for closed Economy Suppose that the chairman of the Federal Reserve Board decides to intervene in the economy at the Federal Open Market Committee Meeting, increasing short term interest rates: (a) How can the Fed increase interest rates? Explain open market operations. Part I - Keynesian Model Short Run (b) Asyaming that the economy starts from an equilibrium in the short run and long run, use the IS-LM diagrams to graphically illustrate the impact of the Federal reserve decision described in part (a) in the short run. Be sure to label: i. the axes; ii. the curves; iii. the initial equilibrium values; iv. the direction the curves shift, v, the short-run equilibrium values. (C) Now state in words the impact in the economy in the short run. In particular, explain what will happen in the goods markets and in the money markets. Show the sequence of events. What are the final effects of this policy on prices and output in the short run? (d) Explain what the monetary mechanism is in this context. Part II - Classical Model Long Run (C) Explain the relationship between money supply and prices based on the Quantity Theory and the assumptions of the Classical model (write down the quantity theory equation, the assumptions, and the consequent relationship between prices, P, and money supply, M). What happens to the level of prices, to nominal GDP, and to real GDP if the Federal Reserve Bank increases the supply of money? (1) Using the quantity theory equation and the Fisher equation, state and explain the effect of an increase in money supply on prices, inflation, nominal interest rates, and the demand for money in