MacroEconomics: Cause-Effect Chain, Money Supply and Demand? (GRAPH)?

Money demand and supply curves are shown on the graph below. The reserve ratio is 10%; banks are fully loaned up.

http://img241.imageshack.us/img241/3659/...

The Fed sells $2 billion worth of bonds to a commercial bank. Use the red line (cross symbols) to show the impact of this open market operation (OMO) on the money market after the monetary expansion/contraction process is complete. Make sure that the new line is parallel to one of the existing lines. Be sure to note the resulting change in the equilibrium real interest rate.

OK so Here is the thing. I know that since the Federal Reserve Bank is SELLING BONDS, they are using a RESTRICTIVE Monetary Policy. Which means the Money Supply (S) FALLS. Now what formula should I use to know exactly how much it FELL?? I need to put that RED LINE on an exact position..

any help would be greatly appreciated, thanks.

MacroEconomics: Cause-Effect Chain, Money Supply and Demand? (GRAPH)?loans uk

$140 billion.

Use the formula of:

Money supply change = $2 billion / 0.1 (10%) = $20 billion change.

In this case like you mentioned it%26#039;s a decrease of $20 billion, hence $160 billion - $20 billion takes us to $140B.

MacroEconomics: Cause-Effect Chain, Money Supply and Demand? (GRAPH)?

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Draw a new curve and plot the line where it intersects the second curve.