A decrease in the supply of money will lead to a(n) _____ in equilibrium real GDP and a _____ equilibrium interest rate.

Question

Quizplus · Accepted Answer

A decrease in the supply of money will lead to a decrease in spending, which will ultimately lead to a decrease in equilibrium real GDP. This is because when there is less money available in the economy, people and businesses will have less money to spend on goods and services. As a result, aggregate demand will decrease, leading to a decrease in equilibrium output. Additionally, a decrease in the supply of money will lead to an increase in the equilibrium interest rate. This is because when there is less money available, demand for borrowing money will remain high, driving up the cost of borrowing (i.e. the interest rate).

A Decrease in the Supply of Money Will Lead to A(n)