Draw the graph · Macro · Money market
The Fed sells bonds
MDmoney demand
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MSmoney supply
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Drag a curve sideways, or use its arrows. A curve you do not move is a curve you are saying stays put. Make each shift clear enough that a reader could see it.
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Money demand stays put. Money supply shifts left.
Selling bonds pulls reserves out of banks, so banks have less to lend and deposits shrink. The quantity of money falls at every interest rate. The money supply line, set by the central bank, shifts left. Money demand is unchanged.
The nominal interest rate rises.
Common mistake. A common error is to shift money demand left because 'people hold fewer bonds.' Bond holdings changed, but the demand for money at each interest rate did not. The central bank moved supply.
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Lesson: Central Bank Tools
Every prompt here is one shift. The course chains them: a lesson on why the curve moves, a graded drawing, and spaced review that brings back the shifts you get wrong.