Figure 15-2
-In Figure 15-2,suppose the economy is initially at a short run equilibrium at point C and there is an unanticipated decrease in the money supply.Which point represents the new short run equilibrium?

Question

Figure 15-2 
-In Figure 15-2,suppose the economy is initially at a short run equilibrium at point C and there is an unanticipated decrease in the money supply.Which point represents the new short run equilibrium?

Quizplus · Accepted Answer

An unanticipated decrease in the money supply would lead to higher interest rates, reducing investment and spending, which in turn would decrease the aggregate demand. This would move the economy to a point with lower output and higher unemployment in the short run, represented by point D.

Figure 15-2 -In Figure 15-2,suppose the Economy Is Initially at a Short