3. Changes in the money supply The following graph represents the money market for some hypothetical economy. This economy is similar to the United States in the sense that it has a central bank called the Fed, but a major difference is that this economy is closed (and therefore does not have any interaction with other world economies). The money market is currently in equilibrium at an interest rate of 4% and a quantity of money equal to $0.4 trillion, designated on the graph by the grey star symbol. 6.0 A 5.5 New MS Curve Money Demand 5.0 4.5 New Equilibrium 4. INTEREST RATE (Percent) 3.5 3.0 2.5 Money Supply 2.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 MONEY (Trillions of dollars)Suppose the Fed announces that it is lowering its target interest rate by F5 basis points, or 0.?5 percentage points. To do this, the Fed will use open market operations to V the V moneyr by V the public. Use the green line (triangle symbol) on the previous graph to illustrate the effects of this policy by placing the new money supply curve (M5) in the correct location. Place the black point (plus symbol) at the new.r equilibrium interest rate andr quantity of money. Suppose the following graph shows the aggregate demand curve for this economy. The Fed's policyr of targeting a lower interest rate will v the cost of borrowing, causing residential and business investment spending to V and the quantity of output demanded to V at each pn'ce level. Suppose the Fed announces that it is lowering its target interest rate by ?5 basis points, or 0.?5 percentage points. To do this, the Fed will use open- market operations to V the V moneyr by V the public. Use the green line {t - ol) on the previous graph to illustrate the effects of this policy by placing the new money supply curve (MS) in the decrease correct location. Plac. mint (plus symbol) at the new.r equilibrium interest rate and quantity of money. Suppose the Fed announces that it is lowering its target interest rate by ?5 basis points, or 0.?5 percentage points. To do this, the Fed will use open market operations to V the V moneyr by V the public. demand for Use the green line (triangle symbol) on t - .ph to illustrate the effects of this policy by placing the new money supply curve (MS) in the supplyr of correct location. Place the black point (pl he new.r equilibrium interest rate and quantity of money. Suppose the Fed announces that it is lowering its target interest rate by 75 basis points, or 0.75 percentage points. To do this, the Fed will use open- market operations to the money by the public. selling bonds to Use the green line (triangle symbol) on the previous graph to illustrate licy by placing the new money supply curve (MS) in the correct location. Place the black point (plus symbol) at the new equilib buying bonds from quantity of money.Suppose the following graph shows the aggregate demand curve for this economy. The Fed's policyr of targeting a lower interest rate will v the cost of borrowing, causing residential and business investment spending to V and the quantity of output demanded to v at each price level. red uce increase e on the graph to show the general impact of the Fed's new interest rate target on aggregate demand. Suppose the following graph shows the aggregate demand curve for this economy. The Fed's policy of targeting a lower interest rate will the cost of borrowing, causing residential and business investment spending to and the quantity of output demanded to at each price level. decrease increase Shift the curve on the graph to show the general impact of the Fed's new interest rate target of demand.Suppose the following graph shows the aggregate demand curve for this economy. The Fed's policyr of targeting a lower interest rate will v the cost of borrowing, causing residential and business investment spending to v and the quantity of output demanded to V at each price level. e on the graph to show the general impact of the Fed's newr interest rate target on aggregate demand. increase decrease f:\\ Shift the curve on the graph to show the general impact of the Fed's new interest rate target on aggregate demand. O Aggregate Demand PRICE LEVEL Aggregate Demand OUTPUT