-In the above figure, suppose the economy is initially on the demand for money curve MD₁. What is the effect of a fall in the interest rate? A) The demand for money curve would shift rightward to MD₂. B) There would be a movement upward along the demand for money curve MD₁. C) The demand for money curve would shift leftward to MD₀. D) There would be a movement downward along the demand for money curve MD₁.

Question

Quizplus · Accepted Answer

A fall in the interest rate would lead to a movement downward along the demand for money curve MD₁, as people would hold more money when the opportunity cost of holding money (interest rate) decreases.

-In the Above Figure, Suppose the Economy Is Initially on the Demand