Exhibit 20-3 Money market demand and supply curves

-In Exhibit 20-3,assume an equilibrium at E₂ with the money supply at $100 billion and the interest rate at 15 percent.The Fed uses its policy tools to move the economy to a new equilibrium at E₁ with a money supply of 150 billion and an interest rate of 10 percent.As part of the adjustment to the new equilibrium,we would expect the:

Question

Exhibit 20-3 Money market demand and supply curves
 
-In Exhibit 20-3,assume an equilibrium at E₂ with the money supply at $100 billion and the interest rate at 15 percent.The Fed uses its policy tools to move the economy to a new equilibrium at E₁ with a money supply of 150 billion and an interest rate of 10 percent.As part of the adjustment to the new equilibrium,we would expect the:

Quizplus · Accepted Answer

When the money supply increases, interest rates typically fall, leading to a rise in bond prices.

Exhibit 20-3 Money Market Demand and Supply Curves