Suppose the Fed decides to sell $100M in Treasury bonds to a bond dealer. Assume that the reserve requirement is 10%.

1a.Draw a clearly-labeled graph that shows the original and the new equilibrium in the money market (in general termsspecific numbers are not necessary for labels in the graph.)

1b.What happens to the interest rate and the money supply?

1c.What is the total increase or decrease in the money supply which will result from the Fed's action?