If the money demand and money supply curves shift leftward, we can conclude that
ID: 2495487 • Letter: I
Question
If the money demand and money supply curves shift leftward, we can conclude that the equilibrium:
quantity of money will decline, but we cannot predict the change in the equilibrium interest rate
quantity of money will stay the same, causing no change in the equilibrium interest rate
quantity of money and the equilibrium interest rate will both increase
quantity of money will increase, but we cannot predict the change in the equilibrium interest rate
interest rate will decline, but we cannot predict the change in the equilibrium quantity of money
Explanation / Answer
The correct answer is option (D).
If the money demand and money supply curves shift leftward, we can conclude that the equilibrium then interest rate will decline, but we cannot predict the change in the equilibrium quantity of money. It reduces the demand of the product thereby, affecting the supply as well. The interest rate must be reduced to increase the sales. This would shift the curve towards right-hand side which shows increasing demand and supply.