Figure 34-2

question 136

Multiple Choice

Figure 34-2
(a) The Money Market
(b) The Aggregate Demand Curve
-Refer to Figure 34-2. A decrease in Y from Y₁ to Y₂ is explained as follows:

• A)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.
• B)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.
• C)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 decrease from Y₁ to Y₂.
• D)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.

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