Consider the money market in the accompanying graph. Initially, the equilibrium interest rate and quantity are represented by the point, E1. Suppose the central bank reduces the money supply. Adjust the graph of the money market to illustrate this change and label the new equilibrium by moving the point, E2. After this recent change in the money supply, what is true about the point E1? The quantity of money demanded is more than the quantity of money supplied. The quantity of money demanded is less than the quantity of money supplied. The quantity of money supplied is more than the quantity of money demanded. Those selling interest-bearing nonmonetary assets will face market pressure to lower their interest rates. Interest rate (%) Incorrect 10 9 8 7 6 5 4 3 2 1 0 0 1 2 E2 Money Market EI 3 4 5 6 Quantity of money 7 8 MS MD 9 10

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
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Chapter1: Making Economics Decisions
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Consider the money market in the accompanying graph.
Initially, the equilibrium interest rate and quantity are
represented by the point, El. Suppose the central bank
reduces the money supply. Adjust the graph of the money
market to illustrate this change and label the new equilibrium
by moving the point, E2.
After this recent change in the money supply, what is
true about the point E1?
The quantity of money demanded is more than the
quantity of money supplied.
The quantity of money demanded is less than the
quantity of money supplied.
The quantity of money supplied is more than the
quantity of money demanded.
Those selling interest-bearing nonmonetary assets
will face market pressure to lower their interest rates.
Interest rate (%)
Incorrect
10
9
8
7
6
5
4
3
2
1
0
0
1
2
E2
Money Market
EI
3 4 5 6
Quantity of money
7
8
MS
MD
9
10
Transcribed Image Text:Consider the money market in the accompanying graph. Initially, the equilibrium interest rate and quantity are represented by the point, El. Suppose the central bank reduces the money supply. Adjust the graph of the money market to illustrate this change and label the new equilibrium by moving the point, E2. After this recent change in the money supply, what is true about the point E1? The quantity of money demanded is more than the quantity of money supplied. The quantity of money demanded is less than the quantity of money supplied. The quantity of money supplied is more than the quantity of money demanded. Those selling interest-bearing nonmonetary assets will face market pressure to lower their interest rates. Interest rate (%) Incorrect 10 9 8 7 6 5 4 3 2 1 0 0 1 2 E2 Money Market EI 3 4 5 6 Quantity of money 7 8 MS MD 9 10
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