Figure 34-2. On the left-hand graph, MS represents the supply of money and MD re

Question

Figure 34-2. On the left-hand graph, MS represents the supply of money and MD represents the demand for money; on the right-hand graph, AD represents aggregate demand. The usual quantities are measured along the axes of both graphs. MS r2 MD2 AD MD efer to Figure 34-2. If the money-supply curve MS on the left-hand graph were to shift to the left, this would a. represent an action taken by the Federal Reserve. b. shift the AD curve to the left. c. create, until the interest rate adjusted, an excess demand for money at the interest rate that equilibrated the money market before the shift. d. All of the above are correct.

Explanation / Answer

d is correct

Leftward shift in money supply is a decrease in money supply which shifts AD to the left. This action can be taken by Federal reserve. Decrease in money supply creates excess demand and to combat excess demand interest rate is increased.

Related Questions

Navigate

• Browse (All)
• Browse F
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.