Figure 21-4. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 21-4. Which of the following events could explain a shift of the money-demand curve from MD₁ to MD₂? A)a decrease in the price level B)a decrease in the cost of borrowing C)an increase in the price level D)an increase in the cost of borrowing

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An increase in the price level would increase the demand for money, as individuals and businesses need more money to finance higher-priced goods and services. This would result in a rightward shift of the money-demand curve from MD₁ to MD₂. A decrease in the price level (choice A) would decrease the demand for money, shifting the curve to the left. A decrease in the cost of borrowing (choice B) would also increase the demand for money, but this would be represented by a movement along the existing money-demand curve, not a shift. Similarly, an increase in the cost of borrowing (choice D) would decrease the demand for money, but this would also be a movement along the curve rather than a shift.