Suppose that the money supply decreases. In the short run, this increases prices according to
A)both the short-run Phillips curve and the aggregate demand and aggregate supply model.
B)neither the short-run Phillips curve nor the aggregate demand and aggregate supply model.
C)the short-run Phillips curve, but not the aggregate demand and aggregate supply model.
D)the aggregate demand and aggregate supply model but not the short-run Phillips curve.

Question

Quizplus · Accepted Answer

A decrease in the money supply typically leads to lower aggregate demand, which in the short run would decrease prices, not increase them, according to both the short-run Phillips curve and the aggregate demand and aggregate supply model.

Suppose That the Money Supply Decreases