1. List the sequence of events in the transmission from a rise in the federal funds rate to a change in the inflation rate.

2. What action does the Fed take? Illustrate the effects of the Fed’s actions in the money market and the loanable funds market.

The economy has slipped into recession and the Fed takes actions to lessen its severity.

3. Explain how the Fed’s actions change aggregate demand and real GDP.

The economy has slipped into recession and the Fed takes actions to lessen its severity.