In an IS-LM Framework, a Decrease in Money Supply Will

question 49

Multiple Choice

In an IS-LM framework, a decrease in money supply will lead to

• A)an increase in aggregate money demand
• B)an increase in both income and the interest rate
• C)an increase in the interest rate and a decrease in income
• D)a decrease in the size of the monetary policy multiplier
• E)both A and C

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Definitions:

Normal Goods

Goods for which demand increases as the income of individuals increases, indicating a positive relationship between income and demand.

Equilibrium Price

This is the price at which the quantity of goods supplied matches the quantity of goods demanded, resulting in market equilibrium.

Demand Curve

A graph depicting the relationship between the price of a good and the quantity demanded by consumers at those prices.

Ceteris Paribus

A Latin phrase meaning "all other things being equal," used in economics to isolate the effect of one variable by holding other influencing factors constant.