Refer to figure above. Name two changes to the economy that would cause the demand curve for money to shift to the right from Md1 to Md2.

a) Suppose the economy is in a recession and the Fed pursues an expansionary monetary policy. This would be depicted as a movement from point ___ to point ___.

b) Suppose the economy is in short-run equilibrium above potential GDP, the unemployment rate is very low, and wages and prices are rising above. The correct Fed policy for this situation would be depicted as a movement from point ___ to point ___.

3) If the Fed orders an expansionary monetary policy, describe what will happen to the following variables relative to what would have happened without the policy:

a. The money supply

b. Interest rates

c. Investment

d. Consumption

e. Net Exports

f.  The aggregate demand curve

g.  Real GDP

h.  The price level