In the short run,a decrease in the money supply will cause a decrease in Gross Domestic Product and a decrease in the price level.

Question

Quizplus · Accepted Answer

A decrease in the money supply will decrease aggregate demand, which will lead to a decrease in GDP. Additionally, the decrease in money supply will cause interest rates to rise, which will decrease investment and consumption, further decreasing GDP. The decrease in aggregate demand will also lead to a decrease in the price level, as there is less money chasing goods and services, and producers may need to decrease prices to maintain sales.

In the Short Run,a Decrease in the Money Supply Will