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The Federal Reserve has various tools to influence the economy in the short-term.
A. Explain, using the AS/AD model and words, how buying bonds from banks and the public would influence the economy. Include in your answer if this is an appropriate policy for periods of inflation or a recession.
B. The FED could have used other tools to influence the economy in a similar way. List 2 other tools that could have been used in this situation that would have led to the same (or similar) impact.
C. Let's say that the President decides he doesn't like the FED's actions and orders them to stop. What would the likely outcome of this request be?
D. Assume that the natural rate of unemployment for the US economy is 4%. If the unemployment rate is at 1%, what's the FED likely to do - and why? Be specific in your answer.
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