For each of the following event, indicate how the Fed should respond if the Fed is in charge of keeping output at its natural rate, regardless of what happens to the price level. In your answers indicate 1) if the Fed will increase or decrease the AD, 2) if the Fed will increase or decrease the interest rate, 3) if the Fed will increase or decrease the money supply, and 4) what open market operations will the Fed conduct.
a. OPEC raises crude oil prices.
b. The demand for new houses sharply decreases causing a major slow down in the housing market.
c. There is a stock market boom.