Exhibit 15.3

-Exhibit 15.3 shows equilibrium in a money market. What happens if the money supply curve shifts from S'_m to Sm while the rate of interest remains at I'?

Question

Exhibit 15.3 -Exhibit 15.3 shows equilibrium in a money market. What happens if the money supply curve shifts from S'_m to Sm while the rate of interest remains at I'?

Quizplus · Accepted Answer

With the shift of the money supply curve to the left (from S'_m to Sm) while the interest rate remains the same, there will be an excess demand for money. As a result, individuals and institutions will try to borrow money to fulfill their demands, causing the interest rate to rise until a new equilibrium is established.

Exhibit 15.3 -Exhibit 15.3 Shows Equilibrium in a Money Market. What Happens