Exhibit 16-1 Money market demand and supply curves

Starting from an equilibrium at E₁ in Exhibit 16-1, a leftward shift of the money supply curve from MS₁ to MS₂ would cause an excess:

Question

Exhibit 16-1 Money market demand and supply curves Starting from an equilibrium at E₁ in Exhibit 16-1, a leftward shift of the money supply curve from MS₁ to MS₂ would cause an excess:

Quizplus · Accepted Answer

A leftward shift of the money supply curve would cause an increase in the interest rate (from U1 to U2), leading to a higher cost of borrowing and a decrease in the quantity of money demanded. This creates an excess demand for money, causing people to sell bonds to obtain the funds they need.

Exhibit 16-1 Money Market Demand and Supply Curves