Suppose the quantity demanded of money at an interest rate of 5% is $2 billion per day, at an interest rate of 3% is $3 billion per day, and at an interest rate of 1% is $4 billion per day. Suppose the money supply is $3 billion per day.

1.Draw a graph of the money market and find the equilibrium interest rate.

2.Suppose the quantity of money demanded decreases by $1 billion per day at each interest rate. Graph this situation and find the new equilibrium interest rate. Explain the process of achieving the new equilibrium in the money market.

3.Suppose instead that the money supply decreases by $1 billion per day. Explain the process of achieving the new equilibrium in the money market.