Figure 16-4. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 16-4. Suppose the current equilibrium interest rate is r₃. Which of the following events would cause the equilibrium interest rate to decrease? A) The Federal Reserve increases the money supply. B) Money demand decreases. C) The price level decreases. D) All of the above are correct.

Question

Quizplus · Accepted Answer

All of the events listed (A, B, and C) would lead to a decrease in the equilibrium interest rate. An increase in the money supply (A) shifts the supply curve of money to the right, a decrease in money demand (B) shifts the demand curve to the left, and a decrease in the price level (C) reduces money demand, all leading to a lower interest rate.