When the Federal Reserve reduces the money supply, at a given price level the amount of output demanded is ______ and the aggregate demand curve shifts ______.

Question

Quizplus · Accepted Answer

When the Federal Reserve reduces the money supply, it decreases the amount of money available for borrowing and spending. This leads to a decrease in consumer and business spending, which leads to a decrease in aggregate demand. As a result, the aggregate demand curve shifts inward. At a given price level, the amount of output demanded also decreases as a result of the decrease in aggregate demand. Therefore, option C is the correct answer.

When the Federal Reserve Reduces the Money Supply, at a Given