Suppose that the Fed makes an open market sale of

$15 million in bonds to HIJ Bank.

a. What is the effect on the Fed’s balance sheet?

b. What is the initial effect on HIJ Bank’s balance sheet?

c. Show in a graph the effect on the market for federal funds. (No numbers are necessary, for this or later sections of this exercise.)

d. Assuming that the level of business confidence remains unchanged, show on a graph how this open market sale will change the level of intended investment.

e. What is the effect on aggregate demand and output? Show on a carefully labeled graph.

f. What is the effect on equilibrium consumption and saving? (You may need to refer back to Chapter 24 to answer this.)