Exhibit 20-3 Money market demand and supply curves

-As shown in Exhibit 20-3,assume the money supply curve shifts rightward from MS₁ to MS₂ and the economy is operating along the intermediate segment of the aggregate supply curve.The result will be a:

Question

Exhibit 20-3 Money market demand and supply curves
 
-As shown in Exhibit 20-3,assume the money supply curve shifts rightward from MS₁ to MS₂ and the economy is operating along the intermediate segment of the aggregate supply curve.The result will be a:

Quizplus · Accepted Answer

A rightward shift in the money supply curve will lead to a decrease in interest rates, which will increase investment and aggregate demand. This increase in aggregate demand will shift the aggregate demand curve to the right, leading to an increase in real GDP and a higher price level. Therefore, choice C is correct. Choice A is incorrect because higher investment would lead to higher real GDP, not lower. Choice B is incorrect because a rightward shift in the money supply curve would not lead to lower investment in the short run. Choice D is incorrect because the question assumes a fixed position along the intermediate segment of the aggregate supply curve, and therefore, there would be an increase in real GDP and the price level.

Exhibit 20-3 Money Market Demand and Supply Curves