The money market follows the law of demand but not the law of supply. This is because private businesses and households respond directly to the price of money, the nominal interest rate, while a central bank is motivated by macroeconomic goals for the health of the economy rather than profit for itself as a business. This means that the demand for money is a downward sloping line, and the supply is a perfectly vertical line, the inelastic quantity being set by the central bank. Equilibrium in the money market is achieved when the nominal interest rate equalizes the quantity demand and quantity supplied of money, and market forces push the nominal interest rate to its equilibrium level. Directions For each prompt below, carefully, and thoroughly follow the directions. For the graphs, be certain to accurately label all axes, curves, and equilibria points. Use arrows to indicate the direction of any shift. Assume that an increasingly digital society decreases their market transactions as they spend more time on non-market online activities. (a) Draw a fully labeled money market, showing the impact of the change on the equilibrium nominal interest rate. (b) Based on the change in part (a), what will happen to the price of previously issued bonds? Explain. (c) On a new graph illustrate the change in the money supply that would be required to restore the original equilibrium interest rate. (d) What could shift the money supply in the way indicated in part (c)? (e) Assume that the original equilibrium nominal interest rate is restored. If the real interest rate turns out to be greater, does that mean the price level has increased or decreased? Explain