Part 5- FRQ Pracee- Complete the following question from the 2&1? AP exam (Question 2). 2. Assume that an economy is in longrun equilibrium. Assume that consumers wish to hold less money because they use credit cards more frequently to purchase goods and services than cash. (a) Draw a correctly labeled graph of the money market and show the effect of the reduced holdings of money on the equilibrium nominal interciit rate in the short run. (b) Based on the change in the interest rate in part (a). what will happen to each of the following in the short run? (i) Prices of previously issued bonds (ii) The price level and real income. Explain. {c} With a constant money supply, based on your answer to part b(ii), will the velocity of money increase, decrease, or remain the same, or is the change indeterminate? {d} If the central bank wishes to reverse the change in the interest rate identied in part (a), what open market operation would it use? Part 3 - Monetary Policy- Fill out the chart showing how each influences the economy. Recessionary Inflationary AS Gap Gap or AD 15. How does a decrease in the interest rate affect investment? Explain. Long-run Self- Adjustment Fiscal Policy 16. What is the difference between the discount rate and the federal funds rate? Monetary Policy Demand or Real Interest Part 4- Loanable Funds- Fill out the chart. Supply Rate for 17. To decrease unemployment, the government deficit spends 18. Political unrest causes foreigners to take money out of the economy. 19. Businesses expect lower sales and worse economic conditions. 20. In anticipation of longer life expectancy, people begin to save more