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Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985

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BuyFindarrow_forward

Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985
Textbook Problem

Use the theory of liquidity preference to explain how a decrease in the money supply affects the aggregate-demand curve.

To determine

Liquidity preference theory and aggregate demand.

Explanation

According to liquidity preference theory, the interest rate adjusts to bring money supply and money demanded into balance. A decrease in the money supply (money supply curve shifts to the left) increases the equilibrium interest rate...

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