The Effect of a Decline in the Money Supply on the Economy

question 36

Multiple Choice

The effect of a decline in the money supply on the economy differs from the effect of a decline in the willingness of banks to lend in that a decline in the money supply will lead to

• A)a decline in output, whereas a decline in the willingness of banks to lend will lead to an increase in output.
• B)an increase in the price level, whereas a decline in the willingness of banks to lend will lead to a decrease in the price level.
• C)an increase in the real interest rate, whereas a decline in the willingness of banks to lend will lead to a decrease in the real interest rate.
• D)a decrease in the price level, whereas a decline in the willingness of banks to lend will lead to an increase in the price level.

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