According to the misperceptions theory,an anticipated decline in the money supply leads to a shift of the AD curve ________ and a shift of the SRAS curve ________.
A)down and to the left; downward
B)down and to the left; upward
C)up and to the right; downward
D)up and to the right; upward

Question

Quizplus · Accepted Answer

According to the misperceptions theory, an anticipated decline in the money supply leads to a shift of the AD curve down and to the left and a shift of the SRAS curve downward. This is because a decline in the money supply leads to a decrease in aggregate demand, which shifts the AD curve to the left. In addition, a decline in the money supply can lead to an increase in interest rates, which can lead to a decrease in aggregate supply, which shifts the SRAS curve downward.

According to the Misperceptions Theory,an Anticipated Decline in the Money