Refer to the following figure when answering
Figure 12.12: Money Market
-Starting at any equilibrium in Figure 12.12, if the Fed loosens money, the money market would move from:
A) point A to B
B) point A to D
C) point B to D
D) point C to A
E) Not enough information is given.

Question

Refer to the following figure when answering  
Figure 12.12: Money Market 
-Starting at any equilibrium in Figure 12.12, if the Fed loosens money, the money market would move from:
A) point A to B 
B) point A to D 
C) point B to D 
D) point C to A 
E) Not enough information is given.

Quizplus · Accepted Answer

When the Fed loosens money, the supply of money increases, causing the equilibrium interest rate to decrease from i1 to i2. At i2, there is excess demand for money, leading to an upward shift in the demand for money curve from MD1 to MD2, resulting in the new equilibrium at point D. Therefore, the money market would move from point A to D.

Refer to the Following Figure When Answering