In the long run, a decrease in the money supply
A)is expected to lead to a decrease in nominal GDP.
B)is expected to lead to a decrease in velocity.
C)is expected to lead to an increase in nominal GDP.
D)is expected to lead to an increase in velocity.
E)has no predictable effect on nominal GDP.

Question

Quizplus · Accepted Answer

A decrease in the money supply leads to a decrease in spending because there is less money available to spend. This decrease in spending reduces the aggregate demand for goods and services, which leads to a decrease in nominal GDP.

In the Long Run, a Decrease in the Money Supply