Figure 33-2
-Refer to Figure 33-2. If the economy starts at S, a decrease in the money supply moves the economy
A)to T in the long run.
B)to U in the long run.
C)back to S in the long run.
D)to V in the long run.

Question

Figure 33-2  ​
-Refer to Figure 33-2. If the economy starts at S, a decrease in the money supply moves the economy
A)to T in the long run. 
B)to U in the long run. 
C)back to S in the long run. 
D)to V in the long run.

Quizplus · Accepted Answer

A decrease in the money supply would initially lead to higher interest rates, reducing investment spending and shifting the aggregate demand curve to the left. In the long run, prices would adjust downward, moving the economy to a point like U where it returns to its original level of output but at a lower price level.

Figure 33-2 ​

Figure 33-2