A-LevelEconomicsGovernment macroeconomic intervention9708/32 · May/June 2019 · Q261 Mark

The diagram shows a liquidity preference curve (LP) representing the demand to hold money in relation to the rate of interest and the money supply (MS) in an economy. The market is in equilibrium at interest rate r.

26If the government increases the money supply, what will be the effect on the interest rate? A falls below zero B falls to zero C increases D no effect[1]

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Marking points from the official mark scheme (May/June 2019). The mark or mark type is shown in brackets.

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Topic: Government macroeconomic intervention, A-Level Economics (syllabus 9708). Structured question, 1 mark.
Source: A-Level Economics, May/June 2019 Paper 3 Variant 2, question 26.

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