In the new classical model, if the money supply falls less than expected, then the shift to the _____ by AD will be _____ than the shift to the _____ by AS in the short run.
A) left, greater, right
B) left, less, right
C) right, greater, left
D) right, less, left

Question

Quizplus · Accepted Answer

In the new classical model, if the money supply falls less than expected, aggregate demand (AD) would shift to the left, but by a smaller magnitude compared to the shift to the right by the aggregate supply (AS) in the short run. This is because a smaller-than-expected decrease in the money supply would reduce spending less than anticipated, affecting AD slightly, while the anticipation of lower prices in the future increases supply, shifting AS to the right.

In the New Classical Model, If the Money Supply Falls