The demand curve and supply curve for one-year discount bonds with a face value of $1,030 are represented by the following equations: Bd. Price = BS: Price = -0.8Quantity +1,100 Quantity + 710 Suppose that, as a result of monetary policy actions, the Federal Reserve sells 60 bonds that it holds. Assume that bond demand and money demand are held constant. Which of the following statements is true? A. If the Fed decreases the supply of bonds in the market by 60, at any given price, the bond supply equation will become Price = Quantity + 750. B. If the Fed increases the supply of bonds in the market by 60, at any given price, the bond supply equation will become Price = Quantity + 650. C. If the Fed increases the supply of bonds in the market by 60, at any given price, the bond supply equation will become Price = Quantity + 770. OD. If the Fed decreases the supply of bonds in the market by 60, at any given price, the bond supply equation will become Price = Quantity + 810. Calculate the effect on the equilibrium interest rate in this market, as a result of the Federal Reserve action. to % (Round your intermediate calculations The expected interest rate on a one-year discount bond will increase to the nearest whole number. Round your final answer to two decimal places.)

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Below you will find the Demand and Supply Curves for $250,000 bonds that mature in 18 years: Qd = 400,000 – 2(P) Qs = 3(P) – 100,000 If the Fed wants to move the interest rate to 5%, what would the bond price have to change to in order to achieve this?

Assume that the current interest rate is 4.0% and the economy is in a mild recession somewhat below YN. Using the model of Liquidity Preference, illustrate with a graph and short explanation how that equilibrium rate of 4.0% is determined. Now, assume the next move by the Fed at its December meeting is to raise the target rate of interest by 50 basis points out of a fear of future inflation. Illustrate this contractionary monetary policy graphically, first through liquidity preference, and then via IS-LM. Could this contractionary move by the Fed result in full employment? Why or why not?