Refer to the following figure when answering
Figure 12.12: Money Market
-Starting at any equilibrium in Figure 12.12, if the Fed tightens money, the money market would move from:
A) point C to A
B) point B to D
C) point B to C
D) point A to D
E) Not enough information is given.

Question

Refer to the following figure when answering  
Figure 12.12: Money Market 
-Starting at any equilibrium in Figure 12.12, if the Fed tightens money, the money market would move from:
A) point C to A 
B) point B to D 
C) point B to C 
D) point A to D 
E) Not enough information is given.

Quizplus · Accepted Answer

When the Fed tightens money, it reduces the money supply, causing interest rates to rise. This would shift the demand for money to the left and result in a new equilibrium at a higher interest rate and lower quantity of money supplied, which is from point B to point C.

Refer to the Following Figure When Answering