Figure 6-1
-In Figure 6-1,a movement from point A to point B can be explained by
A)an increase in the real value of cash balances.
B)a decrease in the real value of cash balances.
C)the decrease in interest rates.
D)the increase in exports to the foreign sector.

Question

Figure 6-1 
-In Figure 6-1,a movement from point A to point B can be explained by
A)an increase in the real value of cash balances. 
B)a decrease in the real value of cash balances. 
C)the decrease in interest rates. 
D)the increase in exports to the foreign sector.

Quizplus · Accepted Answer

The movement from point A to point B represents a decrease in the real value of cash balances. This can be seen by the shift of the LM curve to the left, indicating a decrease in money supply or an increase in money demand. As a result, the interest rates increase and investment decreases, leading to a decrease in aggregate demand and a decrease in output or income.

Figure 6-1 -In Figure 6-1,a Movement from Point a to Point B