Consider an initial IS-LM equilibrium point which corresponds to a point labeled "A" on the current AD curve.
-Refer to the information above.If the nominal money supply falls by 4 percent with no change in the price level,the resulting IS-LM equilibrium corresponds to a point in the AD diagram
A)which has moved upward along the same AD curve.
B)4 percent straight above A on a new AD curve.
C)4 percent straight below A on a new AD curve.
D)directly to the right of A on a new AD curve.
E)directly to the left of A on a new AD curve.

Question

Quizplus · Accepted Answer

A decrease in the nominal money supply, with no change in the price level, would lead to a decrease in aggregate demand. This is because a lower money supply increases interest rates, which reduces investment and spending, shifting the IS-LM equilibrium to the left on the AD diagram.

Consider an Initial IS-LM Equilibrium Point Which Corresponds to a Point