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Refer to the Liquidity Preference Theory Model to answer the following questions: 1) Suppose income increases and keep the aggregate price level in the economy

Refer to the Liquidity Preference Theory Model to answer the following questions:

1) Suppose income increases and keep the aggregate price level in the economy constant. Using the monetary market diagram, illustrate what happens to equilibrium interest rate and income.

2) Link now the monetary market to the bond market. What is the relationship between interest rate and bond price? illustrate the change in equilibrium in the bond market in response to the increase in income in point 1.

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