Figure 10-7
-Refer to Figure 10-7. Following the increase in money supply, at the original interest rate of 6%, there is

Question

Figure 10-7 
-Refer to Figure 10-7. Following the increase in money supply, at the original interest rate of 6%, there is

Quizplus · Accepted Answer

An increase in money supply leads to a rightward shift in the money supply curve from MS1 to MS2. This results in a lower interest rate from 6% to 4%. At the original interest rate of 6%, the quantity of money demanded (MD) is greater than the quantity of money supplied (MS1), leading to an excess demand for money. As a result, individuals holding excess money balances will attempt to lend them out, putting downward pressure on interest rates. Therefore, the correct answer is B, an excess supply of money.

Figure 10-7 -Refer to Figure 10-7. Following the Increase in Money Supply