Figure 34-2

question 6

Multiple Choice

Figure 34-2. On the left-hand graph, MS represents the supply of money and MD represents the demand for money; on the right-hand graph, AD represents aggregate demand. The usual quantities are measured along the axes of both graphs.

-Refer to Figure 34-2. Assume the money market is always in equilibrium. Under the assumptions of the model,

• A) the quantity of goods and services demanded is higher at P2 than it is at P1.
• B) the quantity of money is higher at Y1 than it is at Y2.
• C) an increase in r from r1 to r2 is associated with a decrease in Y from Y1 to Y2.
• D) All of the above are correct.

---

Definitions:

Expected Income

The amount of money an individual or entity anticipates earning over a certain period.

Probability

The measure of the likelihood that a particular event will occur, often expressed as a number between 0 and 1.

Insurance Market

A marketplace where individuals and entities can purchase insurance products to transfer risk and receive financial protection against loss.

Asymmetric Information

A situation in which one party in a transaction has more or better information than the other party, often leading to an imbalance in a transaction.