3. Suppose that you are a member of the Board of Governors of the Federal Reserve System. The economy is experiencing a sharp and prolonged inflationary trend. What changes in (a) the reserve ratio, (b) the discount rate, and (c) open-market operations would you recommend? Explain in each case how the change you advocate would affect commercial bank reserves, the money supply, interestrates, and aggregate demand.
4. What are the three basic functions of money? Describe how rapid inflation can undermine money’s ability to perform each of the three functions.