dy Tools The following diagram represents the money market in the United States, which is currently in equilibrium, as indicated by the grey star Tips Tips 55 Money Demand 50 INTEREST RATE (Percent 45 35 3.0 25 Money Supply New Curve New Equilibrium 20 08 07 10 12 08 QUANTITY OF MONEY (Trions of dollars) 13 Suppose the Federal Reserve (the Fed) announces that it is raising its target interest rate by 25 basis points, or 0.25%. It would achieve this by the Use the green line (triangle symbols) on the preceding graph to illustrate the effects of this policy. Place the black point (plus symbol) on the graph to indicate the new equilibrium interest rate and quantity of money. The sequence of events that results in a new equilibrium interest rate, after the Fed makes the change you selected, may be described as follows: which means that bond issuers Because there is money in the financial system, the quantity of money demanded sell bonds. This process continues until the new equilibrium interest rate is achieved.