During the heavy Christmas shopping season, sales of retail stores, online sales firms, and other merchants rise significantly.
a. What would you expect to happen to the money demand curve during the Christmas season? Show graphically.
b. If the Fed took no action, what would happen to nominal interest rates around Christmas?
c. In fact, nominal interest rates do not change significantly in the fourth quar¬ter of the year, due to deliberate Fed policy. Explain and show graphically how the Fed can ensure that nominal interest rates remain stable around Christmas.