Exhibit 20-3  Money Market Demand and Supply Curves as Shown

question 196

Multiple Choice

Exhibit 20-3  Money market demand and supply curves As shown in Exhibit 20-3, assume the money supply curve shifts rightward from MS₁ to MS₂ and the economy is operating along the intermediate segment of the aggregate supply curve. The result will be a:

• A) higher investment, lower real GDP, and lower price level.
• B) lower investment, lower real GDP, and lower price level.
• C) higher investment, higher real GDP, and higher price level.
• D) higher interest rate and no effect on real GDP or the price level.

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Definitions:

Economic Theory

A framework or set of principles explaining how economies function and how economic agents interact.

Quota Rent

The extra profit that producers can make when supply is artificially restricted by an import quota.

Demand Price

The highest price that consumers are willing to pay for a good or service at a given quantity.

Supply Price

The lowest price at which a seller is willing to sell a good or service, influenced by costs of production and market demand.