A reduction in the effective tax rate on capital that increases desired investment. b) The expected rate of inflation rises. c) An influx of working-age immigrants. d) Increased usage of automatic teller machines that reduces the demand for money. Problem 4. Money Markets and IS-LM Suppose an increase in robberies in the streets makes people hold less money. a) How does this event affect the money market in the short-run if the Fed keeps the money supply constant? Graph the effects of this shock in the money market and IS-LM diagrams. b) How does this event affect the money market in the short-run if the Fed keeps the interest rate