Figure 34-2
(a) The Money Market
(b) The Aggregate Demand Curve
-Refer to Figure 34-2. If the money-supply curve MS on the left-hand graph were to shift to the left, this would
A)not represent an action taken by the Federal Reserve.
B)shift the AD curve to the right.
C)create, until the interest rate adjusted, an excess supply of money at the interest rate that equilibrated the money market before the shift.
D)shift the AD curve to the left.

Question

Figure 34-2
(a) The Money Market
(b) The Aggregate Demand Curve  
-Refer to Figure 34-2. If the money-supply curve MS on the left-hand graph were to shift to the left, this would
A)not represent an action taken by the Federal Reserve. 
B)shift the AD curve to the right. 
C)create, until the interest rate adjusted, an excess supply of money at the interest rate that equilibrated the money market before the shift. 
D)shift the AD curve to the left.

Quizplus · Accepted Answer

Shifting the money supply curve to the left typically represents a contractionary monetary policy by the Federal Reserve, which would decrease the amount of money in circulation. This decrease in money supply would lead to higher interest rates, reducing investment and spending, and thus shifting the Aggregate Demand (AD) curve to the left, indicating a decrease in overall demand in the economy.