Figure 16-4

Multiple Choice

Figure 16-4. On the figure, MS represents money supply and MD represents money demand.

-Refer to Figure 16-4. Suppose the current equilibrium interest rate is r₃. Let Y₃ represent the corresponding quantity of goods and services demanded, and let P₃ represent the corresponding price level. Starting from this situation, if the Federal Reserve decreases the money supply and if the price level remains at P₃, then

A) there will be an increase in the equilibrium quantity of goods and services demanded.
B) there will be a decrease in the equilibrium interest rate.
C) the aggregate-demand curve will shift to the right.
D) fewer firms will choose to borrow to build new factories and buy new equipment.