Use the money market diagram on the right to do the

following analysis. Do each problem separately

using the diagram as the starting point.

a$.$ What will be the price of a discount bond

with a face value of $$10,000$ and $1$ year to

maturity?

b$.$ Suppose that a rash of credit card fraud

convinces people to put their credit cards

away and take out their checkbooks and debit

cards again. As a result, the demand for M$1$

increases by $$0\mathrm{.}4$ trillion at all interest rates.

What is the new interest rate?

c$.$ Based on your answer to part $($b$),$ what will

be the new price of a discount bond with a

face value of $$10,000$ and $1$ year to maturity?

Use the money market diagram in problem $(5)$ as the

starting point for the following analysis.

a$.$ Suppose the Fed decreases the money supply by $$0\mathrm{.}3$ trillion. What is the new value for $M1$ and

the new interest rate?

b$.$ What will be the new price of a discount bond with a face value of $$10,000$ and $1$ year to

maturity?