AGraphically Illustrate the Impact of an Open-Market Purchase by the Bank

question 62

Essay

a.Graphically illustrate the impact of an open-market purchase by the Bank of Canada 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
v.the terminal equilibrium values.b.Explain in words what happens to equilibrium interest rate as a result of the open-market purchase.

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