Exhibit 20-1 Money market demand and supply curves

Starting from an equilibrium at E₁ in Exhibit 20-1, a leftward shift of the money supply curve from MS₁ to MS₂ would cause an excess:

Question

Exhibit 20-1 Money market demand and supply curves Starting from an equilibrium at E₁ in Exhibit 20-1, a leftward shift of the money supply curve from MS₁ to MS₂ would cause an excess:

Quizplus · Accepted Answer

A leftward shift of the money supply curve would cause an increase in the interest rate, which would reduce the quantity of money demanded. This would create an excess demand for money, leading people to sell bonds to obtain the money they need, which would push bond prices down and interest rates up further.

Exhibit 20-1 Money Market Demand and Supply Curves