Figure 16-2. On the left-hand graph, MS represents the supply of money and MD represents the demand for money; on the right-hand graph, AD represents aggregate demand. The usual quantities are measured along the axes of both graphs. -Refer to Figure 16-2. As we move from one point to another along the money-demand curve MD₁, A) the price level is held fixed at P₁. B) the interest rate is held fixed at r₁. C) the money supply is changing so as to keep the money market in equilibrium. D) the expected inflation rate is changing so as to keep the real interest rate constant.

Question

Quizplus · Accepted Answer

The money-demand curve MD₁ represents the relationship between the quantity of money demanded and the interest rate, holding the price level constant.