A Graphically Illustrate the Impact of an Open-Market Purchase by the Federal

Essay

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 shifis
v. the terminal equilibrium values.

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