Figure 21-4. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 21-4. Suppose the current equilibrium interest rate is r₁. Which of the following events would cause the equilibrium interest rate to increase? A)The Federal Reserve increases the money supply. B)Money demand increases. C)The price level decreases. D)All of the above are correct.

Question

Quizplus · Accepted Answer

An increase in money demand would cause the money demand curve to shift to the right, resulting in a new equilibrium point at a higher interest rate. Option A is incorrect because an increase in money supply would shift the MS curve to the right, resulting in a new equilibrium point at a lower interest rate. Option C is also incorrect because a decrease in price level would shift the MD curve to the left, resulting in a new equilibrium point at a lower interest rate.