Suppose the market for money holding (meaning, the liquidity preference model) is in equi- librium at an interest rate of 10%. The reserve ratio is 8%.

1. (a)Depict this situation graphically. 4 points.
2. (b)Suppose the Federal Reserve carries out an open market sale of 60 million U.S. Treasury bonds. How much will the monetary base change when they implement this? How much will the money supply ultimately change? 5 points.
3. (c)Depict graphically the effect this will have in the market for money holding. 2 points.