The ultimate effect of a reduction in the money supply is:
A)a leftward shift of the aggregate demand curve.
B)a rightward shift of the short-run aggregate supply curve.
C)a movement upward along the aggregate demand curve.
D)a movement downward along the aggregate demand curve.
E)a movement upward along the short-run aggregate supply curve.

Question

Quizplus · Accepted Answer

A reduction in the money supply means that there is less spending power in the economy, which leads to a decrease in aggregate demand. This results in a leftward shift of the aggregate demand curve.

The Ultimate Effect of a Reduction in the Money Supply