Suppose the Federal Reserve is concerned about an inflationary gap, and as a result the Fed conducts contractionaty monetary policy.
A. Explain the open market operation the Fed would engage and how that impacts the AD/AS model in the short run.
B. All else equal, how will this affect the value of the dollar in global currency markets? Explain.
C. Does the impact on the value of the dollar help or hinder the Fed's attempts at contracting the economy? Explain.