You be the economist: For this question, I want you to determine the effects of the last increase in interest rates made by the Federal Reserve (see the press release here - the last rate increase by the Fed was conducted on December 20, 2018 (https://www.federalreserve.gov/newsevents/pressreleases/monetary20181219a.htm on the macroeconomy. Assume, for simplicity, that the Federal Reserve accomplishes its goal of increasing interest rates by decreasing the money supply.

a. Start by showing the effects of the monetary policy on a graph. Make sure to label the x-axis, y-axis, and the two curves/lines (functions in the graph). Clearly indicate the direction of the curve shifts (if any) and conclude (or show) that the effect would be an increase in the nominal interest rate.

b. Using the quantity theory of money equation, determine the expected effect of the Fed's monetary policy on the inflation rate. Assume that the percent decrease in the money supply is about 0.25% and that the percent decrease in output is about 0.10%. Provide both a numerical and an intuitive answer. In other words, along with your numerical answer, provide an intuitive explanation for why we observe an increase/decrease in inflation based on this economic situation.

c. Assume that the monetary policy of the Federal Reserve has the effect of increasing the nominal interest rate by 0.25%. What is the expected effect on the real interest rate?

d. Based on your answer to part (c), show, using a graph, the expected effect of this monetary policy on investment (assume, for simplicity, that there is no effect on the saving curve).

e. Now that you have determined the expected outcome of the monetary policy enacted by the Fed, go back to the press release and tell me why, specifically, the Federal Reserve adopted this type of monetary policy. In other words, is the outcome that you obtained in your analysis what the Fed was looking for?