Price level AS Price Level SRAS1 P2 P1 Po P2 AD2 AD AD AD ? Y1 Y2 Real national output Real Nation Graph C) Graph D ( E. Refer to your answer above. Which of the following could reduce the effectiveness of the Fed policy action form above? Quantitative easing Unpredictable changes in money velocity ( ) Interest rate insensitive investment ( ) Excess reserves held by banks ( ) Supply shock recession ( ) Long time lags (4. The economy given in the graph below started out in long-run equilibrium. Then the AD2 curve shifted to AD1. (4 points) Recessionary Gap LRAS Price Level (P. ) SRAS, P2 Receivionor AD2 AD, YFYF Real GDPA. Refer to your answer above. The shock could have been caused by one of the following: a. A lower price level causing producers to reduce production ( ) b. An increase in interest rates c. A substantial increase in the price of a crude oil ( - d. An increase in workers productivity ( ) B. What happened to the economy Y, PL and U as the result of the shock from above? C. If the government does not like the idea of leaving the economy to itself, and the Fed undertakes monetary policy to address the economy problem, a. Would the Fed undertake expansionary or contractionary monetary policy? Expansionary ( ) Contractionary ( b. Refer to your answer above. The goal of the Fed policy would be: Zero interest rate ( ) Low inflation ( ) Economic growth ( ) Low unemployment ( ):2. Refer to your answer above. How should the Fed set target for the federal funds rate to achieve its obj ectivea from above? Lower the target g: ) Increase the target ( :1 d. Refer to your answer above. How should the Fed move the actual FFR to a new interest target? 0 In a normal time under limited reserves regime [before recession 20072009}: I In a time with ample reserves {currently}: 6. What impact should the Fed action have on: I The FFR - Other nominal short-term and long-term interest rates? Real interest rates? Cost of borrowing funds by business and household? Consumers and producers spending decisions? Aggregate demand AD, Real GDP {YE PL, and U in the shortrun? D. Refer to your answers above. Which graph from the given below illustrates the Fed's monetary policy action? Price Level 0 Y;_Y_JY__ Real GDP Recessionary gap Graph A I; }