If uncertainty causes people to increase their demand for cash at the same time that the Fed raises money supply growth,then the Fed's action will:
A) shift the AD curve further to the right.
B) shift the AD curve less to the right.
C) shift the AD curve further to the left.
D) more effectively move the economy back to the old equilibrium point.

Question

Quizplus · Accepted Answer

When uncertainty causes people to increase their demand for cash, they are likely to hold onto money rather than spend it, which can dampen the effect of the Fed's increased money supply on aggregate demand. Thus, the AD curve shifts to the right, but less so than it would have without the increased demand for cash.

If Uncertainty Causes People to Increase Their Demand for Cash