Figure 35-4.On the figure,MS represents money supply and MD represents money demand.
-Refer to Figure 35-4.Suppose the current equilibrium interest rate is r₁.Let Y₁ represent the corresponding quantity of goods and services demanded,and let P₁ represent the corresponding price level.Starting from this situation,if the Federal Reserve increases the money supply and if the price level remains at P₁,then

Question

Figure 35-4.On the figure,MS represents money supply and MD represents money demand.

-Refer to Figure 35-4.Suppose the current equilibrium interest rate is r₁.Let Y₁ represent the corresponding quantity of goods and services demanded,and let P₁ represent the corresponding price level.Starting from this situation,if the Federal Reserve increases the money supply and if the price level remains at P₁,then

Quizplus · Accepted Answer

An increase in the money supply will cause the money demand curve to shift rightward, resulting in a lower interest rate and a higher quantity of goods and services demanded. Because the price level remains constant, the initial equilibrium point is no longer valid, and a new equilibrium point will be established at a lower interest rate and higher output level.