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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 equilibrium interest rate. How does this change in monetary policy affect the aggregate-demand curve?

To determine

Liquidity preference theory, interest rate, and aggregate demand.

Explanation

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

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