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.Let Y₃ represent the corresponding quantity of goods and services demanded,and let P₃ represent the corresponding price level.Starting from this situation,if the Federal Reserve decreases the money supply and if the price level remains at P₃,then A)there will be an increase in the equilibrium quantity of goods and services demanded. B)there will be a decrease in the equilibrium interest rate. C)the aggregate-demand curve will shift to the right. D)fewer firms will choose to borrow to build new factories and buy new equipment.

Question

Quizplus · Accepted Answer

A decrease in the money supply leads to higher interest rates, making borrowing more expensive. As a result, fewer firms will choose to borrow to build new factories and buy new equipment.