Assume that the FED purchases $XYZ of Treasury Bonds through open market operations.

A. Does the money supply increase or decrease? Explain briefly.

B.Will the increase or decrease in the money supply be greater when the reserve requirement is 8% or 12% (or does it matter)? Explain briefly.

C. Explain why this action might cause interest rates to decrease. You must show a graph.

D. Explain why this action might cause interest rates to increase.