Figure 24-4.On the figure,MS represents money supply and MD represents money demand.
-Refer to Figure 24-4.Suppose the current equilibrium interest rate is r₁.Which of the following events would cause the equilibrium interest rate to increase?

Question

Figure 24-4.On the figure,MS represents money supply and MD represents money demand.

-Refer to Figure 24-4.Suppose the current equilibrium interest rate is r₁.Which of the following events would cause the equilibrium interest rate to increase?

Quizplus · Accepted Answer

An increase in money demand would shift the money demand curve to the right, causing a new equilibrium at a higher interest rate (rS2U2B). Option A is incorrect because an increase in money supply would shift the money supply curve to the right, causing a new equilibrium at a lower interest rate (rS2U1B). Option C is incorrect because a decrease in the price level would also shift the money demand curve to the right, causing a new equilibrium at a higher interest rate (rS2U2B).