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 r₃.Which of the following events would cause the equilibrium interest rate to decrease? A)The Federal Reserve increases the money supply. B)Money demand decreases. C)The price level decreases. D)All of the above are correct.

Question

Quizplus · Accepted Answer

All of the events listed (A, B, and C) would lead to a decrease in the equilibrium interest rate. Increasing the money supply (A) shifts the money supply curve right, decreasing interest rates. A decrease in money demand (B) shifts the money demand curve left, also decreasing interest rates. A decrease in the price level (C) reduces money demand, leading to lower interest rates.