A decline in the money supply shifts the MP curve to the left, causing the interest rate to ________ and output to ________, everything else held constant.
A) rise; rise
B) rise; fall
C) fall; rise
D) fall; fall

Question

Quizplus · Accepted Answer

A decrease in the money supply will cause a decrease in spending, leading to a decrease in output. As a result, the demand for money will decrease, causing the interest rates to increase.

A Decline in the Money Supply Shifts the MP Curve