1.Starting with the economy in long-run equilibrium, use the aggregate demand-aggregate supply framework to illustrate what would happen to inflation and output in the short run if there were a rise in consumer confidence in the economy. Assuming the central bank takes no action, what would happen to inflation and output in the long run?

2.Explain why even the most independent central banks are still dependent on the support of the government to meet their policy objectives effectively.
3.Suppose the demand for reserves is stable. With the help of a graph explain how the Open Market Trading Desk would implement a decision by the FOMC to raise the target federal funds rate. You should assume that the 100 basis point spread between the discount rate and the target federal funds rate is maintained.