Suppose aggregate output in the United States is below potential in 2026 and a new Federal Reserve (central bank) chairperson is appointed. Further suppose his or her approach to

monetary policy can be summarized by the following statement:

"I care only about increasing employment. Inflation has been at very low levels for quite some time, my priority is to ease monetary policy to promote employment."

1. Would you expect the LM curve to shift upward or downward? Explain the reason for the shift and how this would likely be accomplished by the Federal Reserve?

b. What would be the effect on interest rates (r), gdp (y), and prices (p) in both the short and long run? Note. As part of this response, draw a graph (or graphs) and email it to me a..r@odu.edu as a PDF or with a picture of the graph inserted in a Microsoft Word document. I will expect this file to arrive shortly after your exam is submitted. Please make certain itis legible, I will not make extra effort to try to figure out poorly lit or poorly taken phone photos.

c. What are the officially stated goals of monetary policy in the United States and are there issues in the short and long run that can keep monetary policy from working as intended?

d. Consider the implications from the Mundell Fleming model discussion. In words, would your the sitation faced by the central bank chairperson change in an economy open to international

trade and capital flows? Describe how this might differ if the country had floating or fixed exchange rates