1. Imagine you are the chairman of the Federal Reserve. Assume your objective at present is twofold; to stabilize inflation and economic activity. Given your objective, describe your response to each of the following scenarios in math, pictures, and words. Report your response in the context of the model(s) we’ve developed in class. Consider each event separate from the others:
i. . a rapid rise in the stock markets rapidly increases people’s wealth;
ii. Chilean citizens get a sudden taste for Buffalo hot wings (Assume Buffalo wings must be made in Buffalo, New York);
iii. firms begin to grow anxious about the decline in consumer confidence.
2. Describe in detail the process of an open market operation that is intended to increase the money supply, Mt . Show the impact of the open market operation in the context of the money market framework.