As an economy moves into a recession,income falls.a.Illustrate graphically the impact of a decrease in income 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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The Answer of As an economy moves into a recession,income falls.a.Illustrate graphically the impact of a decrease in income 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.

As an Economy Moves into a Recession,income Falls