1. In our model from chapter 4, the supply of bonds to domestic and private sectors equals the demand for bonds, i.e. B-B = B,+B a. Plot this graphic, label the axis and explain why the supply of bonds to domestic and private sectors is a vertical line. b. Use this graphic to show and explain what happens to the interest rate if the central bank decides to reduce their holding of Domestic government Bonds Bc. c. Can you say what happens, under this scenario, to the demand for foreign bonds, i.e. the demand for bonds issued by foreign governments. d. Show in the Monetary market the effect of the decision the central bank took. Explain in words why the curve(s) shift. e. Now use the Foreign exchange market graphic to explain what happens to the Exchange rate. f. If the central bank from the foreign economy wants to keep the exchange rate at the level at the value it was before the domestic central bank decided to reduce Bc. What policy must this central bank implement? Please explain and show this in a graphic. 1. In our model from chapter 4, the supply of bonds to domestic and private sectors equals the demand for bonds, i.e. B-B = B,+B a. Plot this graphic, label the axis and explain why the supply of bonds to domestic and private sectors is a vertical line. b. Use this graphic to show and explain what happens to the interest rate if the central bank decides to reduce their holding of Domestic government Bonds Bc. c. Can you say what happens, under this scenario, to the demand for foreign bonds, i.e. the demand for bonds issued by foreign governments. d. Show in the Monetary market the effect of the decision the central bank took. Explain in words why the curve(s) shift. e. Now use the Foreign exchange market graphic to explain what happens to the Exchange rate. f. If the central bank from the foreign economy wants to keep the exchange rate at the level at the value it was before the domestic central bank decided to reduce Bc. What policy must this central bank implement? Please explain and show this in a graphic