To combat inflation in 1955 and 1956, the Fed reduced the money supply. In terms of the AS/AD model, this change should have:
A)shifted the AD curve to the left.
B)shifted the AD curve to the right.
C)made the AD curve flatter.
D)made the AD curve steeper.

Question

Quizplus · Accepted Answer

Reducing the money supply would decrease the overall spending in the economy, leading to a decrease in aggregate demand. This is represented in the AS/AD model by a leftward shift of the AD curve.

To Combat Inflation in 1955 and 1956, the Fed Reduced