Draw the graph · Macro · Money market
The Fed buys bonds
Drag a curve sideways, or use its arrows. A curve you do not move is a curve you are saying stays put. Make each shift clear enough that a reader could see it.
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Money demand stays put. Money supply shifts right.
When the central bank buys bonds, it pays with new reserves, and banks turn reserves into loans and deposits. The quantity of money in the economy rises at every interest rate. The money supply is a vertical line set by the central bank, so it shifts right. Money demand is unchanged.
The nominal interest rate falls.
Common mistake. Students often shift money demand instead, reasoning that 'the Fed wants more money.' The Fed controls supply. The demand curve belongs to households and firms.
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