2. Consider the money market and the exchange market.

a. Construct three diagrams, show the money market in equilibrium:

i. money demand and money supply, labelled as MD1 and MS1

ii. equilibrium interest rate and quantity of money, labelled as i1 and M1, and denoted as point A

b. On the first diagram, show the effects of how an expansionary monetary policy by the Bank of Canada would have on each of the following:

iii. money demand and money supply, labelled as MD2 and MS2

iv. interest rate and quantity of money, labelled as i2 and M2, and denoted as point B

c. On the second diagram, show the effects of how an increase in the interest rate would have on each of the

following:

v. money demand and money supply, labelled as MD3 and MS3

vi. interest rate and quantity of money, labelled as i3 and M3, and denoted as point C

d. On the third diagram, show the effects of how a decrease in the general price level in the economy would

have on each of the following:

vii. money demand and money supply, labelled as MD4 and MS4

viii. interest rate and quantity of money, labelled as i4 and M4, and denoted as point D