Suppose that discount brokers make bonds more liquid, in the sense that it becomes quick and inexpensive to sell bonds.
A. Using an appropriate diagram, illustrate and explain the effects of this situation on the nominal interest rate in the economy.
B. Suppose that the Fed becomes concerned regarding the nominal interest rate change that occurs in part A of this situation. What should the Fed do if it does not want any change in the nominal interest rate in the economy? Explain.