The economy of Andersonville is currently performing at the full-employment level of output with an inflation rate of 2 percent, a natural rate of unemployment at 5 percent, and a nominal interest rate of 7 percent.\

Assume that the Federal Reserve intends to stabilize the fiscal policy with their own monetary policy.

i. Identify two options that the Federal Reserve has.

ii. Explain the effect of this monetary policy on inflation and unemployment.