Interest Rate Expectations and Money Demand

Question

Financial speculators expect that future domestic interest rates will fall, reducing the opportunity cost of holding money. Using the money market graph above, what is the most likely effect on the current money market equilibrium?

Accepted Answer

The money demand curve shifts right, resulting in a higher equilibrium interest rate.

Answer

The money supply curve shifts right, lowering the equilibrium interest rate.

Answer

There is no significant change in the money market as speculators only affect foreign exchange markets.

Answer

The money demand curve shifts left, leading to a lower equilibrium interest rate.