Answer:
A. The MD curve would shift out wards
B. Supply of money is unchanged, with nominal interest rate going up
C. Fed would increase money supply
Explanation:
The accompanying graphs for each answer has been provided in these attachments.
A.
The money demand curve is going to shift outwards or to the right. This is because more money is going to be demanded by people for transaction purposes.
From the graph, we see that money demand increases from MDo to MD1 during Christmas period
B.
If no action is taken by the fed, the supply of money is going to be unchanged while the nominal interest rate would go up.
C.
During this period, the fed would increase supply of money so that the increased need to shop by people can be accommodated without having the interest rate go up.
From the, nominal Interest rate does not change due to the fed policy. Supply of money shifts outward.
