b. Explain the money creation process. What would be the impact of a decrease in the reserve ratio on the overall supply of money?

c. The war between Russia and Ukraine has had significant ramifications on the European economy. Due to the implementation of sanctions on Russia, Europe lost a key supplier of its gas. Besides, due to harvest and shipping disruptions, the prices of essential food components increased sharply. In response to these inflationary supply side shocks, the European Central Bank responded by raising interest rates and the latest statistics show that the European economy is in a recession, but prices remain higher than before the war started. Using an AS-AD framework, illustrate the impact of these developments on the European economy. Clearly indicate the initial price and output levels, and the resulting price and output levels following the shocks described above.