Figure 9.1 -Refer to Figure 9.1. A reduction in the money supply causes: A) the aggregate demand curve to shift from AD₁to AD₀. B) the aggregate demand curve to shift from AD₁to AD₂. C) the economy to move from Point A to Point B, but will not shift the aggregate demand curve. D) neither a shift of the aggregate demand curve nor a change in real GDP.

Question

Quizplus · Accepted Answer

A reduction in the money supply will increase interest rates, causing a decrease in consumption and investment spending. This will shift the aggregate demand curve to the left, from AD₁to AD₀.

Figure 9.1 -Refer to Figure 9.1. a Reduction in the Money Supply