Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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![Question 39
FIGURE 1
MS
r2
P2
P1
r1
MD2
AD
MD,
REFER TO FIGURE 1. A decrease in Y from Y, to Y2 is explained as follows:
O A decrease in P from P2 to P1 causes the money-demand curve to shift from MD1 to MD2; this shift of MD causes r to increase from r1 to
r2; and this increase in r causes Y to deçrease from Y1 to Y2.
O An increase in the price level causes the money-demand curve to shift from MD2 to MD1; this shift of MD causes r to decrease from r2 to r1;
and this decrease in r causes Y to decrease from Y1 to Y2.
O An increase in P from P1 to P2 causes the money-demand curve to shift from MD1 to MD2; this shift of MD causes r to increase from r1 to
r2; and this increase in r causes Y to decrease from Y1 to Y2.
O The Federal Reserve increases the money supply, causing the money-demand curve to shift from MD1 to MD2; this shift of MD causes r to
increase from r1 to r2; and this increase in r causes Y to decrease from Y1 to Y2.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F68cd83ae-2f49-4a82-8efc-6431a168b848%2F1bd15f6a-a82a-4117-b119-4e8061f6edba%2Fu5pz9y9_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Question 39
FIGURE 1
MS
r2
P2
P1
r1
MD2
AD
MD,
REFER TO FIGURE 1. A decrease in Y from Y, to Y2 is explained as follows:
O A decrease in P from P2 to P1 causes the money-demand curve to shift from MD1 to MD2; this shift of MD causes r to increase from r1 to
r2; and this increase in r causes Y to deçrease from Y1 to Y2.
O An increase in the price level causes the money-demand curve to shift from MD2 to MD1; this shift of MD causes r to decrease from r2 to r1;
and this decrease in r causes Y to decrease from Y1 to Y2.
O An increase in P from P1 to P2 causes the money-demand curve to shift from MD1 to MD2; this shift of MD causes r to increase from r1 to
r2; and this increase in r causes Y to decrease from Y1 to Y2.
O The Federal Reserve increases the money supply, causing the money-demand curve to shift from MD1 to MD2; this shift of MD causes r to
increase from r1 to r2; and this increase in r causes Y to decrease from Y1 to Y2.
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