Question: A decrease in the money supply causes interest rates to (rise, fall),which causes consumption and investment to (rise, fall). The changes in consumption and investment

A decrease in the money supply causes interest rates to (rise, fall),which causes consumption and investment to

(rise, fall). The changes in consumption and investment cause aggregate demand to

(increase, decrease), which causes equilibrium income to (rise, fall). Use the following graphs to illustrate the sequence of events following a decrease in the money supply.

Price Level (b) P (a) Interest Rate (percent) Ms1 Md M1 Quantity

Price Level (b) P (a) Interest Rate (percent) Ms1 Md M1 Quantity of Money (billions of dollars) Real GDP (dollars) AS1 AD1

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