Figure 34-2.On the left-hand graph,MS represents the supply of money and MD represents the demand for money;on the right-hand graph,AD represents aggregate demand.The usual quantities are measured along the axes of both graphs. . -Refer to Figure 34-2.Assume the money market is always in equilibrium.Under the assumptions of the model, A)the quantity of goods and services demanded is higher at P₂ than it is at P₁. B)the quantity of money is higher at Y₁ than it is at Y₂. C)an increase in r from r₁ to r₂ is associated with a decrease in Y from Y₁ to Y₂. D)All of the above are correct.

Question

Quizplus · Accepted Answer

An increase in r (interest rate) from r₁ to r₂ is associated with a decrease in Y (real GDP) from Y₁ to Y₂ due to a decrease in aggregate demand (AD shifts to the left). The other statements are not necessarily true based on the information given in the graph.