The United States is at full employment when the Fed cuts the quantity of money, other things remaining the same. Which explains correctly the sequence of effects and the effect of the cut in money supply on aggregate demand?
The United States is at full employment when the Fed cuts the quantity of money, other things remaining the same. Which explains correctly the sequence of effects and the effect of the cut in money supply on aggregate demand?
Chapter16: Monetary Policy
Section: Chapter Questions
Problem 8SQ
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The United States is at full employment when the Fed cuts the quantity of money, other things remaining the same. Which explains correctly the sequence of effects and the effect of the cut in money supply on aggregate
1. We start with the money market equilibrium . The money supply curve shifts to the right and the rate of interest rises. This will decrease real investment that we can see from the Investment demand function. The AE curve will move down as investment (Ibar) declines. This will shift the AD to the left.
2. We start with the money market equilibrium. The money supply curve shifts to the left and the rate of interest rises. This will increase real investment that we can see from the Investment demand function. The AE curve will move down as investment (Ibar) declines. This will shift the AD to the left.
3. We start with the money market equilibrium. The money supply curve shifts to the left and the rate of interest rises. This will decrease real investment that we can see from the Investment demand function. The AE curve will move down as investment (Ibar) declines. This will shift the AD to the left.
4. We start with the money market equilibrium. The money supply curve shifts to the left and the rate of interest rises. This will decrease real investment that we can see from the Investment demand function. The AE curve will move up as investment (Ibar) declines. This will shift the AD to the right.
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