Question 1 (2 points): For each of the following events, indicate whether they are an example of fiscal or monetary policy, and illustrate their effects on equilibrium price level and output using a short-run AS-AD diagram. For full credit, explain in a sentence how you arrived at your answer. A) Congress approves an extension in unemployment insurance B) The Fed sells Treasury bonds to commercial banks C) The Fed lowers the reserve requirement D) Income taxes increase Question 2 (3 points): In the mid 2000s, as house prices began to climb, some were concerned that an overheated housing market was leading to an unstable inflationary gap. As a result, beginning in the second half of 2004, the Federal Reserve (headed by Alan Greenspan at the time) began raising the federal funds rate – a process which continued into late-2006. As we learned about in class, the federal funds rate is one of the key short-term interest rates in the economy