In the interest-rate-based transmission mechanism, a decrease in the money supply will

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A decrease in the money supply typically leads to higher interest rates, not lower, because there is less money available for borrowing. Higher interest rates make borrowing more expensive, which can reduce investment. With lower investment, the aggregate demand function can shift inward, leading to a lower level of real GDP. Choices A, B, and D do not accurately describe the effects of a decrease in the money supply within the context of the interest-rate-based transmission mechanism.

In the Interest-Rate-Based Transmission Mechanism, a Decrease in the Money