The following diagram represents the money market in the United States, which is currently in equilibrium, as indicated by the grey star. INTEREST RATE (Percent] Money Supply 6.0 5.5 5.0 4.5 4.0 3.5 3.0 2.5 1 Money Demand 2.0 0.6 0.7 0.8 0.9 1.0 1.1 1.2 1.3 1.4 QUANTITY OF MONEY (Trillions of dollars) Help Clear All New Curve Suppose the Federal Reserve (the Fed) announces that it is lowering its target interest rate by 75 basis points, or 0.75%. It would achieve this by Use the green line (triangle symbols) the decreasing increasing New Equilibrium interest rate is achieved. on the preceding graph to illustrate the effects of this policy. Place the black point (X symbol) on the graph to indicate the new equilibrium interest rate and quantity of money. can issue bonds at lower interest rates and still must raise the interest they pay to The sequence of events that results in a new equilibrium interest rate, after the Fed makes the change you selected, may be described as follows: Because there is money in the financial system, the quantity of more less interest-bearing financial assets such as bonds demanded money supply money demand " which means that bond issuers increases decreases sell bonds. This process continues until the new equilibrium