A. In Graph "A":

1. Drawing in and using the Money Supply line/curve, graphically demonstrate the derivation of the"Market Interest" rate.

2. Graphically demonstrate what would happen to Money Supply line/curve as the Fed. Reserve expands excess reserves in the banking system.

3. Graphically demonstrate what would happen to the "Market Interest" rate as this happens.

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B. In Graph "B":

1. Graphically identify changes in the Demand for Liquidity curve that would likely result from an expanding GDP, an elevation in inflation rate and/or a serious unplanned event in the financial markets.

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2. What is the most common money supply response of the Federal Reserve Bank to such changes in "Market Interest" rates?

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