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Monetary Policy 1. How would the central fight against a recessionary gap? Describe the role open market operations and the bank rate, and how that causes changes to Y*. 2. Is there a direct or indirect relationship between the demand for money and the interest rate? 3. How is the equilibrium interest rate determined? Draw a graph and show the change that would result if the central bank printed more money. 4. If the central bank raises the bank rate, what kind of problem is the economy facing? Would the central bank be buying, or selling, government bonds? 5. Would the central bank buy or sell government bonds to lower the equilibrium interest rate? 6. If the government were raising the tax rate, would the central bank want to raise or lower the bank rate to fight the same problem? 7. Is there a direct or indirect relationship between the interest rate and investment? 8. Describe a strength of monetary policy compared to fiscal policy