I'm having an issue finalizing the interpretation of the graph. The Graph is correct.As a result of this change in preferences, equilibrium in the money market will be at a lower interest rate. Real money holdings will rise. Is that correct? The graph on the right depicts real money supply.1.) Using the three-point curve drawing tool, draw the aggregate money demand curve in the diagram tothe right. Label this line 'L(R,Y)¹¹.Now suppose that consumers' preferences change in such a way that they choose to carry less cash.2.) On the same graph, using the three-point curve drawing tool, draw the new aggregate demand formoney curve as a result of this change. Label this line 'L(R,Y)²¹.Carefully follow the instructions above and only draw the required objects.As a result of this change in preferences, equilibrium in the money market will be at a lowerrate. Real money holdings will riseinterestCInterest rate, RMSReal money holdingsL(R,Y)1L(R,Y)2

Real money is a generally used term in the financial markets to signify a fully funded, long-only…

Answered: The graph on the right depicts real…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

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I'm having an issue finalizing the interpretation of the graph. The Graph is correct.

As a result of this change in preferences, equilibrium in the money market will be at a lower interest rate. Real money holdings will rise. Is that correct?

The graph on the right depicts real money supply.
1.) Using the three-point curve drawing tool, draw the aggregate money demand curve in the diagram to
the right. Label this line 'L(R,Y)¹¹.
Now suppose that consumers' preferences change in such a way that they choose to carry less cash.
2.) On the same graph, using the three-point curve drawing tool, draw the new aggregate demand for
money curve as a result of this change. Label this line 'L(R,Y)²¹.
Carefully follow the instructions above and only draw the required objects.
As a result of this change in preferences, equilibrium in the money market will be at a lower
rate. Real money holdings will rise
interest
C
Interest rate, R
MS
Real money holdings
L(R,Y)1
L(R,Y)2

Definition Definition Financial market that deals in securities or assets that are short-term in nature. The money market is responsible for keeping up the liquidity of the businesses and the organizations. These securities are usually held for a period of 12 months or less and are issued by institutions that require cash or funds for their short-term cash flow requirements. The money market is regulated by the federal government.

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