(? 18 Money Supply 15 Money Demand 12 Money Supply Money Demand 300 600 900 1200 1500 1800 QUANTITY OF MONEY (Billions of dollars) INTEREST RATE (Percent) The following graph shows the demand for investment. Show the short-run effect of the Fed's contractionary monetary policy by shifting the curve or moving the point along the curve. Again, ignore any potential feedback effects. Be sure the new interest rate corresponds to the interest rate you have on the top graph. 18 15 12 40 80 120 180 200 240 INVESTMENT (Billions of dollars) INTEREST RATE (Percent)

Economics For Today
10th Edition
ISBN:9781337613040
Author:Tucker
Publisher:Tucker
Chapter24: Money And The Federal Reserve System
Section: Chapter Questions
Problem 1SQP
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Suppose the Federal Reserve ("the Fed") shifts to a contractionary monetary policy by selling bonds through open-market operations. Assume that this policy is unanticipated. This problem will work through the short-run effects of this move.
The following graph shows the money demand and money supply curves. Show the effect of the Fed's contractionary monetary policy by shifting one or both of the curves, and ignore any potential feedback effects. As a result of the Fed's policy, the interest rate_____to____ .
(?
18
Money Supply
15
Money Demand
12
Money Supply
Money Demand
300
600
900
1200
1500
1800
QUANTITY OF MONEY (Billions of dollars)
INTEREST RATE (Percent)
Transcribed Image Text:(? 18 Money Supply 15 Money Demand 12 Money Supply Money Demand 300 600 900 1200 1500 1800 QUANTITY OF MONEY (Billions of dollars) INTEREST RATE (Percent)
The following graph shows the demand for investment. Show the short-run effect of the Fed's contractionary monetary policy by shifting the curve or
moving the point along the curve. Again, ignore any potential feedback effects. Be sure the new interest rate corresponds to the interest rate you have
on the top graph.
18
15
12
40
80
120
180
200
240
INVESTMENT (Billions of dollars)
INTEREST RATE (Percent)
Transcribed Image Text:The following graph shows the demand for investment. Show the short-run effect of the Fed's contractionary monetary policy by shifting the curve or moving the point along the curve. Again, ignore any potential feedback effects. Be sure the new interest rate corresponds to the interest rate you have on the top graph. 18 15 12 40 80 120 180 200 240 INVESTMENT (Billions of dollars) INTEREST RATE (Percent)
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