Figure 11-1

-Refer to the Figure 11-1.What happens when the money supply curve shifts from MS₁ to MS₂?
A)The demand for goods and services decreases.
B)The economy's ability to produce goods and services increases.
C)The equilibrium price level increases.
D)The equilibrium value of money increases.

Question

Figure 11-1
 
-Refer to the Figure 11-1.What happens when the money supply curve shifts from MS₁ to MS₂?
A)The demand for goods and services decreases. 
B)The economy's ability to produce goods and services increases. 
C)The equilibrium price level increases. 
D)The equilibrium value of money increases.

Quizplus · Accepted Answer

When the money supply curve shifts from MS₁ to MS₂, the equilibrium point moves from E₁ to E₂, resulting in an increase in the equilibrium price level. Money supply affects the general price level in an economy, and an expansion in the money supply leads to an increase in the general price level. Therefore, the correct option is (C). The other options, (A) and (B), are not directly affected by the shift in the money supply curve. Option (D) is incorrect as an increase in the equilibrium value of money would occur if the demand for money increased, which is not the case here.

Figure 11-1 -Refer to the Figure 11-1.What Happens When the Money Supply