Figure 16-2

Multiple Choice

Figure 16-2. 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 16-2. 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.