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Question

Assume the United States is operating below full employment.

  1. Identify one monetary policy tool that will solve the problem.


2. Using a correctly drawn and labeled AD/AS graph and money market graph, show and explain how the policy you identified in (a) will affect each of the following in the short-run:


i. output and employment

ii. price level

iii. interest rates


3. Explain how the policy you identified in (a) will affect each of the following:


i International value of the dollar

ii. American exports (based on the changing value of the dollar)

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