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Use the money market diagram (demand for and supply of money vs nominal interest rate) to identify changes in demand for and supply of money
Use the money market diagram (demand for and supply of money vs nominal interest rate) to identify changes in demand for and supply of money for the scenarios below. For each scenario, sketch out a diagram and show changes in the demand and supply curves and the equilibrium. Let 'A' and 'B' denote the original and final equilibrium.
a. The Fed conducts a contractionary monetary policy to increase the interest rate.
b. The riskiness of alternative (to money) assets increases.
c. The price level increases.
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