The United States economy is currently operating above the full employment level of GDP.

1. Draw a correctly labeled AD/AS graph for this economy showing equilibrium output and price level.
2. Identify an open market operation that the Federal Reserve could enact that will solve the problem.
3. Show and Explain how the policy you identified in (B) will affect each of the following in the short-run.

output and employment

price level

nominal interest rates

4.If the interest rates you identified in (C) continued, explain what will happen to the following:

U.S. financial assets

International value of the dollar