Figure 12-3. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes.

-Refer to Figure 12-3. Which of the following events could explain a shift of the money-supply curve from MS₁ to MS₂?

Question

Figure 12-3. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes.

-Refer to Figure 12-3. Which of the following events could explain a shift of the money-supply curve from MS₁ to MS₂?

Quizplus · Accepted Answer

An open-market purchase of bonds by the Federal Reserve increases the money supply, shifting the money-supply curve to the right from MS₁ to MS₂. Option A is incorrect because an increase in the value of money would shift the money-demand curve, not the money-supply curve. Option B is incorrect because a decrease in the price level would increase the demand for money, not the supply. Option D is incorrect because there is a correct answer.