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 r₃. Which of the following events would cause the equilibrium interest rate to decrease? A)The Federal Reserve increases the money supply. B)Money demand decreases. C)The price level decreases. D)All of the above are correct.

Question

Quizplus · Accepted Answer

All of the events listed (A, B, and C) would lead to a decrease in the equilibrium interest rate. An increase in the money supply (A) shifts the money supply curve to the right, decreasing interest rates. A decrease in money demand (B) shifts the money demand curve to the left, also decreasing interest rates. A decrease in the price level (C) reduces money demand, leading to lower interest rates.