Exhibit 20-3 Money market demand and supply curves In Exhibit 20-3, assume an equilibrium with an interest rate of 15 percent and the money supply at $100 billion. The Fed uses its policy tools to move the economy to a new equilibrium at E₂ with money supply of $150 billion and an interest rate of 10 percent. This change could be the result of a(n):

Question

Quizplus · Accepted Answer

An open market purchase of securities by the Fed would increase the money supply in the economy, shifting the money supply curve to the right and lowering the equilibrium interest rate. The result is consistent with the new equilibrium at E₂.

Exhibit 20-3 Money Market Demand and Supply Curves in Exhibit