Figure: Money Market I Figure: Economic Adjustments Interest rate, r Price level

Question

Figure: Money Market I Figure: Economic Adjustments Interest rate, r Price level LRAS SRAS SRAS Equilibrium Equilibriunm interest-E rate AD2 AD G F Real GDP ML Quantity of money MH (per year Reference: Ref 15-3 Reference: Ref 15-11 (Figure: Money Market I) Refer to the information in the figure Money Market I. If the money market is initially in equilibrium at point E and the central bank sells bonds, then the interest rate will (Figure: Economic Adjustments) Refer to the information in the figure Economic Adjustments. Assume that the economy is at point b. A decrease in the money supply is represented by a Select one 0 a. shift of the AD, curve to AD," O b. shift of the SRAS, curve to SRAS Select one O a. remain at point E O b. shift rightward O c. move toward point H () d. move toward point L. O c. shift of the SRAS2 curve to SRAS O d. shift of the AD2 curve to AD

Explanation / Answer

15-3)

Option c is correct

Selling of bonds would decrease the money supply in the economy and shift the money supply curve to the left, interest rate will move toward point H.

15-11)

Option d is correct

A decrease in the money supply would shift the AD curve to the left (AD2 to AD1)

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