Question

There is only one interest rate that yields equilibrium in the money market in the country of Freedonia.

creates either an excess demand for money or an excess supply of money. Move the labels to the locatio
represent each of the situations, where E represents equilibrium, EDM represents excess demand for me
represents excess supply of money).

Answer 1

What would happen is that the fed would have to increase the money supply by 3 billion

What would cause the supply to be increased

When the interest rate stands at 2%, the demand for money increases to $7 Billion, surpassing the available money supply of $4 Billion according to the graph.

Consequently, the Federal Reserve (Fed) will augment the money supply by $3 Billion to restore equilibrium.

By doing so, the Fed aims to align the money supply more closely with the heightened demand for money, effectively meeting the economy's needs and restoring balance in the money market.