The graph on the right depicts real money supply. 1.) Using the three-point curve drawing tool, draw the aggregate money demand curve in the diagram to the right. Label this line 'L(R,Y)¹. Now suppose that consumers' preferences change in such a way that they choose to carry less cash. 2.) On the same graph, using the three-point curve drawing tool, draw the new aggregate demand for money curve as a result of this change. Label this line 'L(R,Y)²¹. Carefully follow the instructions above and only draw the required objects. As a result of this change in preferences, equilibrium in the money market will be at a lower interest rate. Real money holdings will rise Interest rate, R MS f L(R,Y)1 L(R,Y)2
The graph on the right depicts real money supply. 1.) Using the three-point curve drawing tool, draw the aggregate money demand curve in the diagram to the right. Label this line 'L(R,Y)¹. Now suppose that consumers' preferences change in such a way that they choose to carry less cash. 2.) On the same graph, using the three-point curve drawing tool, draw the new aggregate demand for money curve as a result of this change. Label this line 'L(R,Y)²¹. Carefully follow the instructions above and only draw the required objects. As a result of this change in preferences, equilibrium in the money market will be at a lower interest rate. Real money holdings will rise Interest rate, R MS f L(R,Y)1 L(R,Y)2
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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I'm having an issue finalizing the interpretation of the graph. The Graph is correct.
As a result of this change in preferences, equilibrium in the

Transcribed Image Text:The graph on the right illustrates the real money supply.
1.) **Using the three-point curve drawing tool**, draw the aggregate money demand curve in the diagram to the right. Label this line 'L(R,Y)^1'.
Now suppose that consumers' preferences change in such a way that they choose to carry less cash.
2.) On the same graph, **using the three-point curve drawing tool**, draw the new aggregate demand for money curve as a result of this change. Label this line 'L(R,Y)^2'.
**Carefully follow the instructions above and only draw the required objects.**
### Graph Explanation
- **Vertical Axis:** Interest rate, R
- **Horizontal Axis:** Real money holdings
- **MS Line:** Represents the money supply, which is a vertical line indicating that it is inelastic with changes in interest rate.
- **L(R,Y)^1 Line:** Represents the initial aggregate money demand curve.
- **L(R,Y)^2 Line:** Shows the new aggregate money demand curve after a change in consumer preferences to carry less cash. This curve shifts to the left of the original curve.
**Conclusion:**
As a result of this change in preferences, equilibrium in the money market will be at a **lower** interest rate. Real money holdings will **rise**.
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