Suppose that the Federal Reserve is worried about inflation. Explain the likely way that the Fed would respond to this concern.

a. Describe the tool(s) it would use to counter this concern. Be sure to offer detail to your description.

b. Explain the effect/direction (in the short run) their policy decision would have on

i. interest rates

ii. aggregate demand

iii. output

iv. unemployment

v. investment

vi. exchange rates

vii. international financial capital flows

c. Draw the 1) AD/AS,  2) loanable funds, and 3) exchange rate models to support your answers