Exhibit 15-1 Money market demand and supply curves

-Starting from an equilibrium at E₁ in Exhibit 15-1,a leftward shift of the money supply curve from MS₁ to MS₂ would cause an excess:

Question

Exhibit 15-1 Money market demand and supply curves
 
-Starting from an equilibrium at E₁ in Exhibit 15-1,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 implies a decrease in the money supply, and this would cause an excess demand for money at the initial interest rate. As a result, people would want to hold more money, which would require them to sell bonds. Therefore, the excess demand for money would lead people to sell bonds (and not buy them).

Exhibit 15-1 Money Market Demand and Supply Curves