Fiscal Policy and the Money Market
If the government contracts fiscal policy by reducing its spending, what is the expected immediate effect on the money market equilibrium illustrated above?
A
The money supply curve shifts right, causing the equilibrium interest rate to drop.
B
The money demand curve shifts left, leading to a lower equilibrium interest rate.
C
The money supply curve shifts left, causing the equilibrium interest rate to rise.
D
The money demand curve shifts right, which increases the equilibrium interest rate.
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