Figure 15.3

-Refer to Figure 15.3 If this economy is initially in a recession, the change in price level which would bring the economy back to full employment would lead to a change in money demand, which is reflected by the movement from
A) f to e.
B) r1 to r0.
C) AS1 to AS0.
D) Md0 to Md1.

Question

Figure 15.3
 
-Refer to Figure 15.3 If this economy is initially in a recession, the change in price level which would bring the economy back to full employment would lead to a change in money demand, which is reflected by the movement from
A) f to e. 
B) r1 to r0. 
C) AS1 to AS0. 
D) Md0 to Md1.

Quizplus · Accepted Answer

In a recession, to bring the economy back to full employment, an increase in the money supply would be needed to stimulate economic activity. This would lower interest rates and increase investment and spending. The increase in the money supply shifts the money demand curve from Md0 to Md1, reflecting the increased demand for money at each interest rate due to higher prices and economic activity.

Figure 15.3 -Refer to Figure 15.3 If This Economy Is Initially in Economy