Illustrating your answer from part 2, with a money supply and demand diagram, explain what happens in the money market when the Fed increases the money supply as it has since 2007? Note that this creates an excess of supply of money that the economy must absorb. Show the creation of the excess supply of money by the Fed, explain how the buying or selling of bonds will cause interest rates to change and how this encourages households and business to hold the new balances of money.
Intro. to Macroeconomics (From the book Principles of Economics, Tenth Edition, Chapter 26).