Describe the shift that took place in Federal Reserve policy in 1979. Explain the reasons for this shift. Suppose the Federal Reserve is using an interest rate as a target, while real income is the...

Describe the shift that took place in Federal Reserve policy in 1979. Explain the reasons for

this shift.

Suppose the Federal Reserve is using an interest rate as a target, while real income is the

ultimate policy target, and there is an autonomous drop in business investment that the

Federal Reserve had not predicted. Use the IS – LM model to show the effects of the shock.

Would income have been affected less or more if the Federal Reserve had been using a

money supply target?