5-7 please **Monetary Policy and its Impact****Diagrams:**1. **Money Market Diagram:** - The first graph represents the Money Market with interest rate (i) on the vertical axis and the quantity of money (MS/MD) on the horizontal axis. - The downward sloping curve is the Money Demand (MD) curve. - The vertical line is the Money Supply (MS) curve. - The intersection of MD and MS curves determines the equilibrium point (E).2. **Macro Economy Diagram:** - The second graph represents the macro economy with the price level (P) on the vertical axis and real output (AD/AS) on the horizontal axis. - The upward sloping curve is the Aggregate Supply (AS) curve. - The downward sloping curve is the Aggregate Demand (AD) curve. - The intersection of AD and AS curves determines the equilibrium point (E).**Questions and Instructions:**5. **Impact of Decreasing the Discount Rate:** - When the Federal Reserve (the Fed) decreases the discount rate, it typically results in an increase in the money supply since borrowing becomes cheaper. - **Money Market:** - Draw a rightward shift of the Money Supply (MS) curve. - The new intersection with the Money Demand (MD) curve will show a lower interest rate and higher quantity of money. - **Macro Economy:** - An increase in money supply lowers interest rates, encourages investment and consumption, shifting the Aggregate Demand (AD) curve to the right. - This can lead to a higher price level and increased output in the short run.6. **Impact of Selling Government Bonds:** - When the Fed sells government bonds, it removes money from circulation, leading to a decrease in the money supply. - **Money Market:** - Draw a leftward shift of the Money Supply (MS) curve. - The new intersection with the Money Demand (MD) curve will show a higher interest rate and lower quantity of money. - **Macro Economy:** - A decrease in money supply raises interest rates, discourages investment and consumption, shifting the Aggregate Demand (AD) curve to the left. - This can lead to a lower price level and decreased output in the short run.7. **Selling Government Bonds and Inflation:** - Selling government bonds is a proper monetary policy against inflation because it

The equilibrium interest rate in an economy is determined in the money market by the demand and…

Maney Market し P. MALRO Ew AS ADIAS 5. When the Fed decreases the discount rate, there will be some change in each figure. Drawing your own figures to show the change and briefly explain each figure. 6. When the Fed sells government bonds, there will te some change in each figure. Drawing your own figures to show the change and briefly explain each figure. 7. Fed's selling of government bonds is a proper monetary policy against inflation. True or False

Maney Market し P. MALRO Ew AS ADIAS 5. When the Fed decreases the discount rate, there will be some change in each figure. Drawing your own figures to show the change and briefly explain each figure. 6. When the Fed sells government bonds, there will te some change in each figure. Drawing your own figures to show the change and briefly explain each figure. 7. Fed's selling of government bonds is a proper monetary policy against inflation. True or False

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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