Figure 11.6 Alt text for Figure 11.6: In figure 11.6, a graph shows movement in the money market.
Long description for Figure 11.6: The x-axis is labelled, quantity of money, M (billions of dollars), with values 900 and 950 marked.The y-axis is labelled, interest rate, i, with values 3 and 4% marked.3 lines are shown; MS1, MS2, and MD.Line MD begins in the top left corner and slopes down to the end of the x-axis.Line MS1 is perpendicular to the x-axis, and begins from the value 950.Line MS2 is perpendicular to the x-axis, and begins from the value 900, to the left of line MS1.Line MD intersects line MS1 at point A (950, 3), approximately 3 quarters of the way along both lines.Line MD meets line MS2 at point B (900, 4%), more than half way along both lines.These points of intersection are connected to their respective coordinates on the y-axis using dotted lines.
-Refer to Figure 11.6.In the figure above, the movement from point A to point B in the money market would be caused by
A)an increase in the price level.
B)a decrease in real GDP.
C)an open market sale of Canada bonds by the Bank of Canada.
D)a decrease in the desired reserve ratio by commercial banks.
E)an increase in the willingness of commercial banks to make risky loans.

Question

Figure 11.6  Alt text for Figure 11.6: In figure 11.6, a graph shows movement in the money market.
Long description for Figure 11.6: The x-axis is labelled, quantity of money, M (billions of dollars), with values 900 and 950 marked.The y-axis is labelled, interest rate, i, with values 3 and 4% marked.3 lines are shown; MS1, MS2, and MD.Line MD begins in the top left corner and slopes down to the end of the x-axis.Line MS1 is perpendicular to the x-axis, and begins from the value 950.Line MS2 is perpendicular to the x-axis, and begins from the value 900, to the left of line MS1.Line MD intersects line MS1 at point A (950, 3), approximately 3 quarters of the way along both lines.Line MD meets line MS2 at point B (900, 4%), more than half way along both lines.These points of intersection are connected to their respective coordinates on the y-axis using dotted lines.
-Refer to Figure 11.6.In the figure above, the movement from point A to point B in the money market would be caused by
A)an increase in the price level. 
B)a decrease in real GDP. 
C)an open market sale of Canada bonds by the Bank of Canada. 
D)a decrease in the desired reserve ratio by commercial banks. 
E)an increase in the willingness of commercial banks to make risky loans.

Quizplus · Accepted Answer

The movement from point A to point B in the money market would be caused by an open market sale of Canada bonds by the Bank of Canada. This would shift the MD curve to the left, leading to a decrease in both the quantity of money and the interest rate. This movement is reflected in the intersection of line MD with both MS1 and MS2, resulting in a movement from point A (950, 3%) to point B (900, 4%). Therefore, option C is the correct answer.

Figure 116 Alt Text for Figure 11