The figure given below shows the interest rate on the vertical axis and the quantity of money on the horizontal axis. In this figure, a decrease in nominal GDP with no change in the price level will cause a movement from:
A) point B to point A.
B) point A to point B.
C) DM to DM'.
D) DM to DM*.
E) point E to point F.

Question

The figure given below shows the interest rate on the vertical axis and the quantity of money on the horizontal axis. In this figure, a decrease in nominal GDP with no change in the price level will cause a movement from: 
A) point B to point A. 
B) point A to point B. 
C) DM to DM'. 
D) DM to DM*. 
E) point E to point F.

Quizplus · Accepted Answer

A decrease in nominal GDP with no change in the price level indicates a decrease in real GDP. This leads to a decrease in the demand for money, which shifts the demand curve for money to the left. As a result, the equilibrium interest rate decreases from DM to DM*, causing a movement from point B to point A on the graph.

The Figure Given Below Shows the Interest Rate on the Vertical