Question

In the AD-AS model, an unexpected decrease in the growth rate of the money supply causes:

A) Increased output.
B) Decreased output.
C) Inflation.
D) Deflation.

Answer 1

In the AD-AS model, an unexpected decrease in the growth rate of the money supply will cause a decrease in output.

Step-by-step explanation:

In the AD-AS model, an unexpected decrease in the growth rate of the money supply will cause a decrease in output. This is because a decrease in the money supply will lead to a decrease in aggregate demand, which will result in a decrease in output and employment in the economy. This can be illustrated in the AD/AS diagram by showing a leftward shift of the AD curve.