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Question 3: Monetary policy and open market operations. Suppose that money demand is given by: M\" = $Y(O.25 - 1') Where $Y is $100. Also suppose the supply of money is $20. as What is the equilibrium interest rate? b. Say the Federal Reserve wants to increase t by 10 percentage points. i. What does this policy choice imply about how well the economy is doing? ii. Does it need to buy or sell bonds? Why\"? c. If the Federal Reserve wants to increase i by 10 percentage points, at what level should it set the money supply? CL Show graphically how a change in the money supply leads to an increase in the interest rate. Question 4: Bond prices and interest rates Consider a bond that promises to pay $100 in one year. a. What is the equilibrium interest rate on the bond if its price today is $75? $85? b. Explain why there is an inverse relationship between bond prices and interest rates. (Explain the economic logic, not only the mechanics of the formula). c. If the interest rate is 8%, what is the price of the bond today