To earn full credit for graphical analysis questions, you need to graph and label the diagram...

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To earn full credit for graphical analysis questions, you need to graph and label the diagram and briefly explain the changes. Q1 (20%) a Use the supply and demand analysis of the bonds market to graphically show the net effect of an increase in expected inflation followed by a business cycle expansion with growing wealth and income. (5%) b What happens to the equilibrium interest rate? Why? (Hint: The change might be ambiguous) (5%) C Given the stated changes in a) and holding everything else constant, what does the Liquidity Preference Framework predict? (5%) d Suppose there is an increase in money supply following the stated changes in a). How might this action solve the different predictions in b) and c)? (5%). Q2 (10%) The FED can reduce the money supply by selling bonds to the public. Using the Liquidity Preference Framework, graphically show what effect this action has on interest rates. Q3 (10%) Assume that initially, the interest rate on U.S. Treasury bonds is equal to that on bonds issued by the Greek government. In 2010 and 2011, the Greek government risked defaulting on its bonds due to a severe fiscal crisis. 1. Using the bond market graph, show the effects on U.S. Treasury bonds and Greek bonds (assume we are comparing bonds with the same maturity). (5%) 2. What is the impact on the price and interest rate of Greek bonds relative to U.S. Treasury bonds? (5%) To earn full credit for graphical analysis questions, you need to graph and label the diagram and briefly explain the changes. Q1 (20%) a Use the supply and demand analysis of the bonds market to graphically show the net effect of an increase in expected inflation followed by a business cycle expansion with growing wealth and income. (5%) b What happens to the equilibrium interest rate? Why? (Hint: The change might be ambiguous) (5%) C Given the stated changes in a) and holding everything else constant, what does the Liquidity Preference Framework predict? (5%) d Suppose there is an increase in money supply following the stated changes in a). How might this action solve the different predictions in b) and c)? (5%). Q2 (10%) The FED can reduce the money supply by selling bonds to the public. Using the Liquidity Preference Framework, graphically show what effect this action has on interest rates. Q3 (10%) Assume that initially, the interest rate on U.S. Treasury bonds is equal to that on bonds issued by the Greek government. In 2010 and 2011, the Greek government risked defaulting on its bonds due to a severe fiscal crisis. 1. Using the bond market graph, show the effects on U.S. Treasury bonds and Greek bonds (assume we are comparing bonds with the same maturity). (5%) 2. What is the impact on the price and interest rate of Greek bonds relative to U.S. Treasury bonds? (5%)