Problem
1. In the above question, if the Fed wanted to respond to the drop in the money supply with open market operations, should it purchase or sell bonds? How many dollars' worth of bonds should be involved? {Hint: Assume that all transactions are with corporations that adjust their demand deposits to compensate for the transactions.)
2. Carefully define M1 and M2. How are they different? Which seems to be a more realistic way of accounting for the role of money in influencing economic activity?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.