Figure 34-4.On the figure,MS represents money supply and MD represents money demand. -Refer to Figure 34-4.Suppose the current equilibrium interest rate is r₁.Which of the following events would cause the equilibrium interest rate to increase? A)The Federal Reserve increases the money supply. B)Money demand increases. C)The price level decreases. D)All of the above are correct.

Question

Quizplus · Accepted Answer

If money demand increases, the demand for loanable funds will increase, causing an increase in the equilibrium interest rate from r₁ to rS2U2B21S2U2B0. An increase in money supply or a decrease in the price level would shift the money supply curve to the right, resulting in a decrease in the equilibrium interest rate. Therefore, options A and C are incorrect.