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Figure: Short-Run Determination of the Interest Rate
-(Figure: Short-Run Determination of the Interest Rate) Look at the figure Short-Run Determination of the Interest Rate. If the money supply is at MS₂ and the central bank sells Treasury bills, then in the short run the interest rate will:

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Figure: Short-Run Determination of the Interest Rate

-(Figure: Short-Run Determination of the Interest Rate) Look at the figure Short-Run Determination of the Interest Rate. If the money supply is at MS₂ and the central bank sells Treasury bills, then in the short run the interest rate will:

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When the central bank sells Treasury bills, the money supply decreases, leading to an increase in the interest rate. In this case, the money supply moves from MS₂ to MS₁, which shifts the money supply curve to the left. As a result, the interest rate will increase to r₁ in the short run.

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