Figure 14.1 -Using Figure 14.1,ceteris paribus,if the Federal Reserve increases the discount rate,this indicates a desire to _______ the money supply and will cause a shift from ______. A) Expand;AD₁ to AD₂ B) Expand;AS₁ to AS₂ C) Contract;AD₂ to AD₁ D) Contract;AS₃ to AS₂

Question

Quizplus · Accepted Answer

According to Figure 14.1, a decrease in the money supply shifts the aggregate demand curve from AD₂ to AD₁. Therefore, an increase in the discount rate, which discourages borrowing and reduces the money supply, will cause a contraction in the money supply and shift the aggregate demand curve leftward to AD₁.

Figure 14.1 -Using Figure 14.1,ceteris Paribus,if the Federal Reserve Increases the Discount