The Federal Reserve and Central Banking 1. What open market operation would achieve the expansionary monetary policy above? Given that policy decision draw a graph of the money market and show the change in the nominal interest rate. 2. Explain the effect of the expansionary monetary policy on the price level and output in the short run. 3. Explain the effect on the price level and output in the long run. 4. Explain what you think will happen to the nominal rate of interest and the real rate of interest in the short run as the Fed continues to increase the money supply. 5. Explain what you think will happen to the nominal rate of interest and the real rate of interest in the long run. Explain why. 6. Many economists think that moving from short-run equilibrium to long-run equilibrium may take several years. List three reasons why the economy might not immediately move to long-run equilibrium. 7. Briefly summarize the long-run impact of an expansionary monetary policy on the economy. 5