Draw the graph · Macro · Money market
The price level falls
MDmoney demand
—
MSmoney supply
—
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.
Show the model answer
Money demand shifts left. Money supply stays put.
When prices fall, the same purchases need fewer dollars, so people want to hold less money at every interest rate. Money demand shifts left. The money supply is fixed, so the interest rate falls.
The nominal interest rate falls.
Common mistake. Students sometimes shift money supply left because 'fewer dollars are used.' The money stock is unchanged. Only the amount people want to hold has fallen.
More money market prompts
Go deeper
Lesson: The Money Market
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.