Graphical implications of open market purchase

Reference no: EM1313555

a. Graphically illustrate the impact of an open-market purchase by the Federal Reserve on the equilibrium interest rate using the theory of liquidity preference and the market for real money balances. (Be sure to label:

i. the axes;
ii. the curves;
iii. the initial equilibrium values;
iv. the direction the curve shifts; and
v. the terminal equilibrium values.)

b. Explain in words what happens to equilibrium interest rate as a result of the open-market purchase.

Reference no: EM1313555

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