Money Supply and Money Demand (25 pts) For the following shocks to the economy draw two diagrams. For the rst diagram explain the initial shock's impact in the money market. For the second diagram show how the money market reaches equilibrium in response to the shock assuming no price rigidity. For both diagrams explain in words what is happening.

a) (5 pts) Issues in nancial markets makes individuals believe that financial assets are now riskier.

b) (5 pts) The Federal Reserve enacts contractionary monetary policy and decreases the money supply 5

(c) (5 pts) Increased government spending through scal policy raises the real interest rate in the goods market.

d) (5 pts) An increase in productivity increases real output without increasing the real interest rate

(e) (5 pts) Aggressive action by the federal reserve leaves households more reassured that disination will occur, lowering ination expectations