Figure 34-5. On the figure, MS represents money supply and MD represents money demand.
-Refer to Figure 34-5. 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.

Question

Figure 34-5. On the figure, MS represents money supply and MD represents money demand. 
-Refer to Figure 34-5. 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.

Quizplus · Accepted Answer

A decrease in people's incomes would lead to a decrease in the demand for money, shifting the money-demand curve from MD2 to MD1.