Question 3 (20 points}: During the pandemic, the Federal Reserve injected a lot of money into the economy I a | E m a. (5 points) Explain how the Federal Reserve generated an increase of money supply through the Federal Open Market Operations. b. (10 points) Use a money supply-demand graph and predict the e'ects of this policy on ination and the value of money. Specically. (i) Show a money supply-demand graph with fully labeled axes and the old equilibrium (ii) Show which curve shifts (iii) Explain, in words. how the economy goes from the old equilibrium point to the new equilibrium point. (iv) As a result of this policy, what happens to the ination (higher or lower) and value of money (higher or lower). c. (5 points) One of the major goals of this policy is to reduce the federal funds rate (see below). Explain why the Fed wants to keep the federal mds rate so low. m .. leulmm Huge decline in the /-' federal funds rate .r/