Question 1:

A. Pretend that the United States is in a "more normal" economic climate than it currently is. Suppose that Jerome Powell, Chairman of the Federal Reserve, announces that the Fed plans to initiate the purchase of $1 trillion worth of Treasury and other bonds that banks and the public are currently holding. The reserve requirement for banks is 5% of deposits. In as much detail as possible, trace through all the steps between this announcement and the ultimate effects on the (i) money supply, (ii) interest rates, (iii) inflation, and (iv) US dollar/foreign exchange rates. Your answer should include text explanations, graphs, T-accounts, and equations. And be sure to label all graphs, T-accounts, etc.

B. Given the information in part (a), carefully explain the predicted effects on the consumer sector. Then explain the predicted effects on the corporate sector. In explanation, we are interested in understanding how and why their decisions are affected.