This Question: 1 pt 6 of 40 (0 complete) A decrease in the money supply sets the

Question

This Question: 1 pt 6 of 40 (0 complete) A decrease in the money supply sets the monetary transmission mechanism in motion which results in O A. a fall in the rate of interest, a rise in the level of desired investment, an upward shift in the AE curve, and a rightward shift in the AD curve. O B. a rise in the rate of interest, a rise in the level of desired investment, a downward shift in the AE curve, and a leftward shift in the AD curve O C. a rise in the rate of interest, a fall in the level of desired investment, a downward shift in the AE curve, and a leftward shift in the AD curve. ( D. a rise in the rate of interest, a fall in the level of desired investment, an upward shift in the AE curve, and a rightward shift in the AD curve. 0 E. a fall in the rate of interest, a fall in the level of desired investment, a downward shift in the AE curve, and a leftward shift in the AD curve.

Explanation / Answer

(1) (C)

As money supply falls, interest rate rises and so, investment demand falls. Lower investment causes a downward shift of AE curve and leftward shift of AD curve.

(2) (B)

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