Question 3. In this question, we'll look at a single shock to the economy, but we'll analyze its effects using several of the supply-and-demand frameworks that introduced in the course. Suppose that there's a technological innovation that makes companies more productive, thereby permanently increasing the long-run output of the economy. For each of the following, provide a graph of supply and demand, showing how the market responds. a) Consider the market for money. Assume that the Fed does not change the supply of money in response to the technological innovation. What happens to demand, and why? What happens to interest rates? b) Consider the market for bonds; assume that the bonds are Viewed as completely liquid and risk-free. What happens to the demand for bonds, and why? What about the supply of bonds? Given the relationship between bond prices and interest rates (and what you concluded in part (a) about interest rates) what do you think will happen to the price of bonds? (3) Consider the market for reserves. Again, assume that the Fed does nothing to accommodate the technological change, so the supply of reserves remains xed. HOW does the demand for reserves change, and why? What happens to the federal funds rate? When answering the latter question, consider three possibilities for What the market looked like before the technological change: i. The fed funds rate is initially equal to the discount rate. ii. The fed funds rate is initially equal to the interest rate on reserves. iii. The fed funds rate is initially in between the discount rate and the interest rate on reserves