Use the following to answer questions .
Exhibit: Economic Adjustments
-(Exhibit: Economic Adjustments) Assume that the economy is at point b. A decrease in the money supply would cause

Question

Use the following to answer questions .
Exhibit: Economic Adjustments 
-(Exhibit: Economic Adjustments) Assume that the economy is at point b. A decrease in the money supply would cause

Quizplus · Accepted Answer

A decrease in the money supply would shift the aggregate demand curve to the left, resulting in a decrease in both output and the price level. This shift would move the economy from point b to the left along the AD curve, to point a. Therefore, the correct answer is B, which shows the shift from AD₂ to AD₁. Neither of the two choices related to the short run aggregate supply curve is correct, as a change in the money supply affects the AD curve, not the SRAS curve.

Use the Following to Answer Questions