a) Suppose the supply of money and demand for money drawn below. The Fed introduces an expansionary monetary policy move to counter the recession we have entered. As a result income is rising/unchanged/falling (Circle One) and expectations of inflation are rising/unchanged/falling (Circle One). Show the effects in the model below - label all axes and curves. MS What happens to the interest rate under this scenario so far? Circle One: It rises It stays the same It falls b) We took a good deal of time early in this course to review the "transmission mechanism" of an increase in the supply of money. When the money supply is increased (as above) that increase in money works its way into Aggregate Demand through "direct" and "indirect"-paths. Explain these paths below.