Figure 16-5

Figure 16-5. On the figure, MS represents money supply and MD represents money demand.

-Refer to Figure 16-5. A shift of the money-demand curve from MD₂ to MD₁ is consistent with which of the following sets of events?

A) The government cuts taxes, resulting in an increase in people's incomes.
B) The government reduces government spending, resulting in a decrease in people's incomes.
C) The Federal Reserve increases the supply of money, which decreases the interest rate.
D) All of the above are correct.