Figure 15.5

-Refer to Figure 15.5. If GDP is below potential output, the effect on the money market is represented by movement from point ________ to point ________.
A) c; a
B) b; d
C) d; c
D) b; a

Question

Figure 15.5
 
-Refer to Figure 15.5. If GDP is below potential output, the effect on the money market is represented by movement from point ________ to point ________.
A) c; a 
B) b; d 
C) d; c 
D) b; a

Quizplus · Accepted Answer

When GDP is below potential output, the demand for money decreases because there is less economic activity requiring transactions. This decrease in money demand leads to a movement from a higher interest rate point to a lower one, such as moving from point b to point d in a typical money market diagram.

Figure 15.5 -Refer to Figure 15.5. If GDP Is Below Potential Output