Suppose the following conditions describe the current state of the United States economy.

• Real gross domestic product is growing at the rate of 3 percent.
• The inflation rate is 2 percent.
• The unemployment rate is 9 percent.

(a) Identify the main problem that the economy faces.

(b) Assume the Federal Reserve decides to remedy the conditions described above by engaging in open-market operations.

(i) Describe the action the Federal Reserve would take.

(ii) Draw the money market graph and the AS/AS graph to show how the open market operations affect the economy.Label everything.

(iii)Explain the impact of this policy on each of the following:

- The interest rate

- Output and employment

- The price level