During the heavy Christmas shopping season, sales of retail stores, online sales

Question

During the heavy Christmas shopping season, sales of retail stores, online sales, firms, and other merchants rise significantly. (a) What would you expect to happen to the money demand curve during the Christmas season? Show graphically. (b) If the Fed took no action, what would happen to nominal interest rates around Christmas? It probably would rise due to increased demand. (c) In fact, nominal interest rates do not change significantly in the fourth quarter of the year, due to deliberate Fed policy. Explain and show graphically how the Fed can ensure that nominal interest rates remain stable around Christmas.

Explanation / Answer

(a)the curve is rising from left to right with a curve indicating that the more the demand over the products with the increase of price/money ,.(b)the nominal interest would gradually increase around Christmas.(c) refer to http://www.angrybearblog.com/2010/08/non-relationship-between-interest-rates_12.html (or) http://people.stern.nyu.edu/nroubini/NOTES/CHAP8.HTM

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