Refer to the diagram below. Which of the following is associated with the change shown on the diagram?

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A rightward shift of the vertical money-supply curve represents an increase in the supply of money (Ms). In the standard money market model money demand (Md) is downward-sloping in the interest rate, so increasing Ms lowers the equilibrium interest rate and raises quantity of money held. 1) Relevant knowledge points and concepts - Money supply (Ms) is typically drawn as vertical when the central bank fixes it; a rightward shift = larger Ms. - Money demand (Md) slopes down because higher interest rates raise the opportunity cost of holding money. - Equilibrium is where Ms = Md; the interest rate adjusts to clear the market. - Expansionary monetary policy increases Ms (e.g., open market purchases), lowering the cash/market interest rate. 2) Step-by-step reasoning - Initially equilibrium: Ms0 intersects Md at interest rate i0 and quantity Q0. - The diagram shows Ms shifting right to Ms1 (Ms1 > Ms0). - At the old interest rate i0, Md > Ms1, so the interest rate must fall to restore equality. - New equilibrium: lower interest rate i1 < i0 and larger quantity Q1 > Q0. 3) Intermediate (algebraic) steps - Let Md = L(i,Y) with dL/di < 0. Equilibrium: L(i, Y) = Ms. - With Ms' > Ms, solve L(i', Y) = Ms' => since L decreases with i, i' < i. - Therefore i falls, quantity (equal to Ms') rises. 4) Why the correct answer is correct - Expansionary monetary policy is precisely an increase in Ms. The diagram shows Ms increasing (rightward shift), so option a matches. 5) Why other options are incorrect - b. Contractionary policy would shift Ms left, not right. - c. A decrease in money circulated contradicts the rightward shift (which is an increase). - d. A higher cash rate is wrong because the shift lowers the interest/cash rate, not raises it. 6) Conclusion The diagram shows an increased money supply consistent with expansionary monetary policy. Final answer: a. Expansionary monetary policy.

Refer to the diagram below. Which of the following is associated with the change shown on the diagram?单项选择题

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