Figure 16-4. On the figure, MS represents money supply and MD represents money demand.

-Refer to Figure 16-4. Which of the following events could explain a shift of the money-demand curve from MD₁ to MD₂?

Question

Figure 16-4. On the figure, MS represents money supply and MD represents money demand.

-Refer to Figure 16-4. Which of the following events could explain a shift of the money-demand curve from MD₁ to MD₂?

Quizplus · Accepted Answer

An increase in the price level would increase the demand for money, as individuals and businesses would need more money to purchase goods and services at the higher prices. This would shift the money-demand curve to the right, from MD₁ to MD₂. A decrease in the price level, a decrease in the cost of borrowing, or an increase in the cost of borrowing would not directly affect the demand for money and would not cause a shift in the money-demand curve.