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Principles of Macroeconomics (Mind...

7th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781285165912

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BuyFindarrow_forward

Principles of Macroeconomics (Mind...

7th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781285165912
Chapter 21, Problem 2QR
Textbook Problem
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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 of Solution

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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