A decrease in real money supply caused by an increase in the price level is graphically represented by
A)a shift of the AD-curve to the right
B)a shift of the AD-curve to the left
C)movement along the AD-curve to the right
D)movement along the AD-curve to the left
E)a shift of the AS-curve to the right

Question

Quizplus · Accepted Answer

An increase in the price level reduces the purchasing power of individuals' monetary holdings, leading to a decrease in real money supply. As a result, the AD-curve shifts to the left, indicating that at any given price level, there is a lower quantity of goods and services demanded. This is because individuals experience a decrease in their real income, which reduces their ability to purchase goods and services. Thus, option D, movement along the AD-curve to the left, is the correct representation of the decrease in real money supply caused by an increase in the price level.

A Decrease in Real Money Supply Caused by an Increase