Question 1:

a. Draw a carefully labeled money market diagram to show the initial equilibrium of quantity of money and the price level.

b. Now suppose that changes in bank regulations expand the availability of credit cards, so the people need to hold less cash. Show (on the same diagram you drew above in part a) and explain how this will affect the demand for money

c. If the Bank of Canada wants to keep price level stable, what should it do? Show this on the same diagram in a) and explain.