On March 16, 2020, the Wall Street Journal reported the following:

Corporate treasurers and pension managers, panicked by the growing economic damage from the Covid-19 pandemic, were pulling billions of dollars from certain money-market funds. This was forcing the funds to try to sell some of the bonds they held.But there were almost no buyers. Everybody was suddenly desperate for cash.

Terrified investors ditched municipal debt at fire-sale prices, underwriters canceled billions of dollars worth of deals and new borrowing stopped. There was less bond issuance in the week of March 16 than at any point during the 2008 financial crisis, the 2001 terrorist attacks or the week of 1987's Black Monday.

A. Use the Liquidity Preference theory to analyze this situation, and make a prediction about the change in the interest rate. Explain and draw a graph on paper to support your answer.

B. Should the Federal Reserve take any policy actions? Give a yes or no answer. If your answer is yes, explain what policy is appropriate, and what goals it will achieve. If your answer is no, explain why. Modify the diagram on paper to support your answer.