A decline in the money ________ shifts the MP curve to the ________, causing the interest rate to rise and output to fall, everything else held constant.
A) demand; right
B) demand; left
C) supply; right
D) supply; left

Question

Quizplus · Accepted Answer

A decline in the money supply reduces the amount of money available for lending and borrowing, which increases the demand for loanable funds and causes the interest rate to rise. This, in turn, discourages investment and consumption spending, leading to a decrease in output. Therefore, the MP curve shifts to the left.

A Decline in the Money ________ Shifts the MP Curve