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Figure: Short-Run Determination of the Interest Rate
-(Figure: Short-Run Determination of the Interest Rate) Refer to Figure: Short-Run Determination of the Interest Rate. If the money supply is at MS₂ and the central bank sells Treasury bills, then the resulting short-run shift in the supply of savings (loanable funds) may be represented by a shift of the:

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Figure: Short-Run Determination of the Interest Rate

-(Figure: Short-Run Determination of the Interest Rate) Refer to Figure: Short-Run Determination of the Interest Rate. If the money supply is at MS₂ and the central bank sells Treasury bills, then the resulting short-run shift in the supply of savings (loanable funds) may be represented by a shift of the:

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When the central bank sells Treasury bills, it effectively reduces the amount of money in circulation because the buyers of these bills exchange money for the bills, which is then removed from the banking system. This action reduces the money supply, leading to a decrease in the supply of loanable funds as there is less money available for lending. Consequently, the supply curve of loanable funds shifts to the left (from S₂ to S₁), which, due to the reduced supply of funds available for loans, increases the interest rate.

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