Exhibit 20-1 Money market demand and supply curves As shown in Exhibit 20-1, assume the money supply curve shifts leftward from MS₁ to MS₂ and the economy is operating along the intermediate segment of the aggregate supply curve. The result will be a:

Question

Quizplus · Accepted Answer

When the money supply curve shifts leftward, it causes an increase in interest rates. Higher interest rates will reduce investment and lower aggregate demand, which leads to a decrease in real GDP and a lower price level. This is represented by a movement along the intermediate segment of the aggregate supply curve. Therefore, the correct answer is B: lower investment, lower real GDP, and lower price level.

Exhibit 20-1 Money Market Demand and Supply Curves as Shown